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The EU, the EEU, and the War in Ukraine: Political Risks and Management Options

This special issue entitled “The EU, the EEU, and the War in Ukraine: Political Risks and Management Options” is published within the framework of the Jean Monnet Network project “The EU and the EEU: Between Conflict and Competition, Convergence and Cooperation” (EUCON). The aim of this project co-funded by the Erasmus+ programme is to explore the complexity of relations between the European Union and the Eurasian Economic Union.

This special issue entitled “The EU, the EEU, and the War in Ukraine: Political Risks and Management Options” is published within the framework of the Jean Monnet Network project “The EU and the EEU: Between Conflict and Competition, Convergence and Cooperation” (EUCON). The aim of this project co-funded by the Erasmus+ programme is to explore the complexity of relations between the European Union and the Eurasian Economic Union.

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B<strong>and</strong> 33 · März 2023<br />

Wirtschaft und <strong>Management</strong><br />

Schriftenreihe zur wirtschaftswissenschaftlichen Forschung und Praxis<br />

<strong>The</strong> <strong>EU</strong>, <strong>the</strong> E<strong>EU</strong>, <strong>and</strong> <strong>the</strong> <strong>War</strong> <strong>in</strong> Ukra<strong>in</strong>e:<br />

<strong>Political</strong> <strong>Risks</strong> <strong>and</strong> <strong>Management</strong> <strong>Options</strong><br />

Hannes Meissner / Johannes Leitner<br />

From Conflict to <strong>War</strong> <strong>in</strong> Ukra<strong>in</strong>e.<br />

<strong>The</strong> New Realities of <strong>Political</strong> Risk <strong>Management</strong> <strong>in</strong> <strong>the</strong> post-Soviet space<br />

Florence Ertel / Julian Plottka<br />

Internal <strong>and</strong> External <strong>Political</strong> Contestation <strong>in</strong> Kazakhstan<br />

Oxana Karnaukhova<br />

Central Asia between <strong>the</strong> European Union <strong>and</strong> Eurasian Economic Union:<br />

Sovereignty Underestimated<br />

David Morris<br />

<strong>The</strong> Huawei battleground: A critical case of political risk<br />

<strong>in</strong> <strong>the</strong> new global power contest<br />

Albert Hayrapetyan / Susanna Aghajanyan<br />

<strong>The</strong> impact of sanctions on Russia<br />

<strong>and</strong> <strong>the</strong> consequent Russian bus<strong>in</strong>ess relocation to Armenia<br />

ISSN 1812-9056<br />

Herausgegeben von der Fachhochschule des BFI Wien Gesellschaft m.b.H.


Wirtschaft und <strong>Management</strong><br />

Schriftenreihe zur wirtschaftswissenschaftlichen<br />

Forschung und Praxis


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Editorial<br />

Dear Reader,<br />

This special issue entitled “<strong>The</strong> <strong>EU</strong>, <strong>the</strong> E<strong>EU</strong>, <strong>and</strong> <strong>the</strong> <strong>War</strong> <strong>in</strong> Ukra<strong>in</strong>e: <strong>Political</strong><br />

<strong>Risks</strong> <strong>and</strong> <strong>Management</strong> <strong>Options</strong>” is published with<strong>in</strong> <strong>the</strong> framework of<br />

<strong>the</strong> Jean Monnet Network project “<strong>The</strong> <strong>EU</strong> <strong>and</strong> <strong>the</strong> E<strong>EU</strong>: Between Conflict<br />

<strong>and</strong> Competition, Convergence <strong>and</strong> Cooperation” (<strong>EU</strong>CON). <strong>The</strong> aim of this project co-funded by <strong>the</strong><br />

­Erasmus+ programme is to explore <strong>the</strong> complexity of relations between <strong>the</strong> European Union <strong>and</strong> <strong>the</strong><br />

Eurasian Economic Union.<br />

Andreas Bre<strong>in</strong>bauer<br />

Head of <strong>the</strong> Academic Council of<br />

<strong>the</strong> University of Applied Sciences<br />

BFI Vienna<br />

In <strong>the</strong> first contribution, Hannes Meissner <strong>and</strong> Johannes Leitner zero <strong>in</strong> on <strong>the</strong> dramatic geopolitical<br />

changes currently tak<strong>in</strong>g place aga<strong>in</strong>st <strong>the</strong> backdrop of <strong>the</strong> Russian attack on Ukra<strong>in</strong>e. <strong>The</strong>y analyse<br />

<strong>the</strong> possible effects on enterprises <strong>and</strong> provide an outlook on new risk management strategies <strong>in</strong> light<br />

of Russia’s strong <strong>in</strong>fluence on post-Soviet countries.<br />

<strong>The</strong> second paper, by Florence Ertel <strong>and</strong> Julian Plottka, deals with <strong>the</strong> economic <strong>and</strong> political situation<br />

<strong>in</strong> Kazakhstan. <strong>The</strong> authors assess <strong>the</strong> political risks result<strong>in</strong>g from recent developments, evaluate<br />

<strong>the</strong> impact of <strong>the</strong> latter on traditional Kazakh “multi-vector foreign policy” <strong>and</strong> analyse <strong>the</strong> course of<br />

current Kazakh foreign <strong>and</strong> economic policies.<br />

<strong>The</strong> follow<strong>in</strong>g contribution by Oxana Karnaukhova addresses <strong>the</strong> role of Central Asian countries with<strong>in</strong><br />

a chang<strong>in</strong>g geopolitical context, argu<strong>in</strong>g that on emerg<strong>in</strong>g markets economic sovereignty is a key<br />

driver of regional development, a factor that must not be underestimated.<br />

<strong>The</strong> paper by David Morris focusses on new technologies as a key battleground for <strong>the</strong> power contest<br />

between <strong>the</strong> United States <strong>and</strong> Ch<strong>in</strong>a. Based on <strong>the</strong> Huawei bus<strong>in</strong>ess case, <strong>the</strong> author raises questions<br />

about identify<strong>in</strong>g, assess<strong>in</strong>g <strong>and</strong> manag<strong>in</strong>g cyber risks <strong>and</strong> po<strong>in</strong>ts out <strong>the</strong> challenges <strong>the</strong>se issues<br />

represent for <strong>the</strong> national security of a state.<br />

In <strong>the</strong> fifth paper, Albert Hayrapetyan <strong>and</strong> Susanna Aghajanyan provide an <strong>in</strong>sightful analysis of <strong>the</strong><br />

short- <strong>and</strong> long-term effects of Russia‘s <strong>in</strong>vasion of Ukra<strong>in</strong>e on Armenia‘s economy, highlight<strong>in</strong>g also<br />

<strong>the</strong> impact of Armenia‘s policy of position<strong>in</strong>g itself as a tax haven for Russian companies.<br />

We hope you f<strong>in</strong>d this special issue an <strong>in</strong>terest<strong>in</strong>g read <strong>and</strong> look forward to receiv<strong>in</strong>g your feedback!<br />

Rector Prof. (FH) Dr. Andreas Bre<strong>in</strong>bauer<br />

Head of <strong>the</strong> Academic Council of <strong>the</strong> University of Applied Sciences BFI Vienna


Table of Contents<br />

ArticlesPage<br />

From Conflict to <strong>War</strong> <strong>in</strong> Ukra<strong>in</strong>e. <strong>The</strong> New Realities of <strong>Political</strong> Risk <strong>Management</strong><br />

<strong>in</strong> <strong>the</strong> post-Soviet space7<br />

Hannes Meissner / Johannes Leitner<br />

Internal <strong>and</strong> External <strong>Political</strong> Contestation <strong>in</strong> Kazakhstan19<br />

Florence Ertel / Julian Plottka<br />

Central Asia between <strong>the</strong> European Union <strong>and</strong> Eurasian Economic Union: Sovereignty Underestimated37<br />

Oxana Karnaukhova<br />

<strong>The</strong> Huawei battleground:<br />

A critical case of political risk <strong>in</strong> <strong>the</strong> new global power contest53<br />

David Morris<br />

<strong>The</strong> impact of sanctions on Russia <strong>and</strong> <strong>the</strong> consequent Russian bus<strong>in</strong>ess relocation to Armenia67<br />

Albert Hayrapetyan / Susanna Aghajanyan<br />

List of AuthorsPage<br />

List of Authors79<br />

Work<strong>in</strong>g Papers <strong>and</strong> Studies of <strong>the</strong> University of Applied Sciences ViennaPage<br />

Work<strong>in</strong>g Papers <strong>and</strong> Studies of <strong>the</strong> University of Applied Sciences Vienna83


Impressum<br />

Medien<strong>in</strong>haber, Herausgeber und Verleger:<br />

Fachhochschule des BFI Wien Gesellschaft m.b.H.<br />

A-1020 Wien, Wohlmutstraße 22, Tel.: +43/1/720 12 86<br />

E-Mail: <strong>in</strong>fo@fh-vie.ac.at<br />

http://www.fh-vie.ac.at<br />

Geschäftsführung:<br />

Mag. a Eva Schießl-Foggenste<strong>in</strong>er<br />

Redaktion:<br />

Prof. (FH) Dr. Andreas Bre<strong>in</strong>bauer<br />

Dr. Hannes Meissner<br />

Gabriele Bucher, MSc<br />

Mart<strong>in</strong>a Morawetz-Wies<strong>in</strong>ger<br />

Lektorat:<br />

Mag. Mart<strong>in</strong> Buxbaum, M.A.<br />

Mag. a Barbara Ebersberger-Fischerleitner<br />

MMag. a Kathar<strong>in</strong>a Gröbl<strong>in</strong>ger<br />

Mag. a Victoria Kohoutek<br />

Prof. <strong>in</strong> (FH) Dr. <strong>in</strong> Margit Ozvalda<br />

Layout und Druck:<br />

Claudia Kurz, A-2392 Grub im Wienerwald<br />

ISBN: 978-3-902624-69-7 (Pr<strong>in</strong>tversion)<br />

ISBN: 978-3-902624-70-3 (E-Version)<br />

H<strong>in</strong>weis des Herausgebers:<br />

Die <strong>in</strong> „Wirtschaft und <strong>Management</strong>“ veröffentlichten Beiträge enthalten die persönlichen Ansichten<br />

der Autor:<strong>in</strong>nen und reflektieren nicht notwendigerweise den St<strong>and</strong>punkt der Fachhochschule des<br />

BFI Wien.<br />

Project title:<br />

“<strong>The</strong> <strong>EU</strong> <strong>and</strong> <strong>the</strong> E<strong>EU</strong>: Between Conflict <strong>and</strong> Competition, Convergence <strong>and</strong> Cooperation” (<strong>EU</strong>CON)<br />

Project number:<br />

620085-EPP-1-2020-1-AT-EPPJMO-NETWORK<br />

Disclaimer:<br />

“<strong>The</strong> European Commission‘s support for <strong>the</strong> production of this publication does not constitute<br />

an endorsement of <strong>the</strong> contents, which reflect <strong>the</strong> views only of <strong>the</strong> authors, <strong>and</strong> <strong>the</strong> Commission<br />

cannot be held responsible for any use which may be made of <strong>the</strong> <strong>in</strong>formation conta<strong>in</strong>ed <strong>the</strong>re<strong>in</strong>.”


Hannes Meissner / Johannes Leitner<br />

From Conflict to <strong>War</strong> <strong>in</strong> Ukra<strong>in</strong>e.<br />

<strong>The</strong> New Realities of <strong>Political</strong> Risk<br />

<strong>Management</strong> <strong>in</strong> <strong>the</strong> post-Soviet space<br />

Abstract<br />

This chapter is dedicated to both <strong>the</strong> political risk constellation <strong>in</strong> Ukra<strong>in</strong>e prior<br />

to February 24 th <strong>and</strong> to <strong>the</strong> political risk constellation s<strong>in</strong>ce <strong>the</strong> Russian attack.<br />

In <strong>the</strong> former regard, it presents results from a field trip to Kiev <strong>in</strong> October 2021.<br />

In <strong>the</strong> latter regard, this chapter provides an outlook on <strong>the</strong> new political risk<br />

constellation <strong>and</strong> risk management strategies given Moscow’s tighten<strong>in</strong>g grip<br />

on post-Soviet countries.<br />

Hannes Meissner<br />

UAS BFI Vienna<br />

1 Introduction<br />

This chapter is an immediate witness of <strong>the</strong> dramatic geopolitical changes<br />

currently go<strong>in</strong>g on aga<strong>in</strong>st <strong>the</strong> backdrop of <strong>the</strong> Russian attack on Ukra<strong>in</strong>e. It is <strong>the</strong><br />

result of a research project with <strong>the</strong> <strong>in</strong>itial aim to analyse <strong>and</strong> evaluate chances<br />

<strong>and</strong> risks for enterprises with regard to Ukra<strong>in</strong>e’s bridg<strong>in</strong>g function between <strong>the</strong><br />

East (Russia <strong>and</strong> Ch<strong>in</strong>a) <strong>and</strong> <strong>the</strong> West (<strong>EU</strong>/wider Europe). In this context, <strong>the</strong> research project has<br />

been embedded <strong>in</strong>to <strong>the</strong> Erasmus+/Jean Monnet Networks Project “<strong>EU</strong>CON”, deal<strong>in</strong>g with <strong>EU</strong><br />

<strong>and</strong> E<strong>EU</strong>/Russia relations that had until recently been characterised not only (although ma<strong>in</strong>ly)<br />

by conflict <strong>and</strong> competition, but also by cooperation <strong>and</strong> potential convergence.<br />

Johannes Leitner<br />

L&M PRISK<br />

<strong>The</strong> Russian attack on Ukra<strong>in</strong>e has far reach<strong>in</strong>g effects on <strong>the</strong> world order. Many commentators<br />

from academia, media <strong>and</strong> <strong>the</strong> political sphere consider February 24th (2022) to be ano<strong>the</strong>r<br />

turn<strong>in</strong>g po<strong>in</strong>t of global reach after November 9th (1989). However, while <strong>the</strong> latter date clearly<br />

marked <strong>the</strong> end of <strong>the</strong> bipolar world order of East-West confrontation, <strong>the</strong> f<strong>in</strong>al consequences<br />

of <strong>the</strong> current events are not fully clear yet. Moreover, <strong>the</strong> changes have been on <strong>the</strong> horizon for<br />

years. Ultimately, a new world order is currently beg<strong>in</strong>n<strong>in</strong>g to emerge. <strong>The</strong> previous world order<br />

dom<strong>in</strong>ated by <strong>the</strong> west, based on norms <strong>and</strong> <strong>in</strong>ternational law developed <strong>in</strong> <strong>the</strong> aftermath of <strong>the</strong><br />

Second World <strong>War</strong>, is currently dis<strong>in</strong>tegrat<strong>in</strong>g <strong>in</strong>to new blocks. <strong>The</strong> most likely future scenario<br />

is that <strong>the</strong> world will be divided by competition <strong>and</strong> conflict between <strong>the</strong> West <strong>and</strong> non-liberal<br />

authoritarian powers, such as Russia <strong>and</strong> Ch<strong>in</strong>a. However, <strong>in</strong> this context, Ch<strong>in</strong>a is more likely to<br />

become <strong>the</strong> dom<strong>in</strong>ant power, <strong>and</strong> not Russia. At <strong>the</strong> same time, regional powers such as India,<br />

Saudi Arabia, Indonesia (etc.) will wisely use <strong>the</strong>ir new opportunities, <strong>in</strong> most cases aga<strong>in</strong>st <strong>the</strong><br />

immediate <strong>in</strong>terests of <strong>the</strong> West.<br />

Wirtschaft und <strong>Management</strong> · B<strong>and</strong> 33 · März 2023<br />

7


Hannes Meissner / Johannes Leitner<br />

<strong>The</strong> miscalculation by many <strong>in</strong> <strong>the</strong> West that Russia would not start a war for economic rationality<br />

shows how dom<strong>in</strong>ant <strong>the</strong> neoliberal perspective that economic <strong>in</strong>terests of countries <strong>and</strong> nonstate<br />

actors dom<strong>in</strong>ate <strong>the</strong> <strong>in</strong>ternational arena has become. For this reason, national security<br />

<strong>in</strong>terests <strong>and</strong> non-read<strong>in</strong>ess for cooperation – as predicted by neorealism – have re-entered <strong>the</strong><br />

academic debate about <strong>in</strong>ternational politics. One th<strong>in</strong>g is clear, though. <strong>The</strong> new global constellation<br />

will have far reach<strong>in</strong>g consequences, not only for politicians, but also for enterprises.<br />

Consequently, both policymakers <strong>and</strong> managers must adapt to new realities.<br />

This chapter is dedicated to both <strong>the</strong> political risk constellation prior to February 24 th <strong>and</strong> to <strong>the</strong><br />

political risk constellation s<strong>in</strong>ce <strong>the</strong> Russian attack on Ukra<strong>in</strong>e. In <strong>the</strong> former regard, it presents<br />

results from a field trip to Kiev <strong>in</strong> October 2021, deal<strong>in</strong>g with <strong>the</strong> follow<strong>in</strong>g questions: In what ways<br />

are companies confronted with political risks related to competition <strong>and</strong> conflict <strong>in</strong> <strong>the</strong> course of<br />

<strong>EU</strong>-E<strong>EU</strong> relations? How do <strong>the</strong>y perceive <strong>the</strong> conflict <strong>in</strong> general? How do <strong>the</strong>y manage <strong>the</strong> risks?<br />

Additionally, <strong>the</strong> chapter sheds light on <strong>the</strong> managers’ perceptions of <strong>the</strong> root causes of <strong>the</strong><br />

conflict between Russia <strong>and</strong> <strong>the</strong> <strong>EU</strong> as well as <strong>the</strong>ir ideas on future cooperation <strong>and</strong> convergence<br />

between <strong>the</strong> <strong>EU</strong> <strong>and</strong> <strong>the</strong> E<strong>EU</strong> (prior to February 24 th ). In <strong>the</strong> latter regard, this chapter provides an<br />

outlook on <strong>the</strong> new political risk constellation <strong>and</strong> risk management strategies under <strong>the</strong> current<br />

conditions.<br />

<strong>The</strong> follow<strong>in</strong>g section (section two) <strong>in</strong>troduces <strong>the</strong> concept of political risk. In this context, it<br />

provides <strong>the</strong> analytical structure <strong>the</strong> empirical study (section four) draws on. Section three offers<br />

<strong>in</strong>sights <strong>in</strong>to <strong>the</strong> methodology applied to <strong>the</strong> research project. <strong>The</strong> empirical study (section four)<br />

provides answers to <strong>the</strong> questions <strong>in</strong>troduced above. <strong>The</strong> field study to Kiev took place <strong>in</strong> October<br />

2021, four months prior to <strong>the</strong> Russian attack. Section five takes a f<strong>in</strong>al look at <strong>the</strong> new political<br />

risk constellation s<strong>in</strong>ce February 24 th , focus<strong>in</strong>g on war <strong>in</strong> Ukra<strong>in</strong>e as well as Russia’s tighten<strong>in</strong>g<br />

grip on post-Soviet countries.<br />

2 <strong>The</strong> concept of <strong>Political</strong> Risk<br />

<strong>The</strong> <strong>in</strong>ternationalisation of a company is usually associated with an <strong>in</strong>creased risk. <strong>The</strong> risks<br />

arise ma<strong>in</strong>ly from <strong>the</strong> fact that <strong>the</strong> company is enter<strong>in</strong>g a new market that may differ culturally,<br />

socially, economically, legally, politically-<strong>in</strong>stitutionally as well as structurally – i.e., <strong>in</strong> <strong>the</strong><br />

constellation of <strong>the</strong> competition <strong>and</strong> local market preferences. Above all, <strong>the</strong> transformational<br />

eco nomies <strong>in</strong> <strong>the</strong> post-Soviet region <strong>in</strong>cur a heightened risk portfolio (Hoskisson et al 2000;<br />

Meschi 2005; Alcantara/Mitsuhashi 2013). In addition to socio-economic <strong>and</strong> market risks,<br />

<strong>the</strong>re are also specific political risk factors that have a significant <strong>in</strong>fluence on <strong>in</strong>ternational<br />

bus<strong>in</strong>ess activities (Leitner/Meissner 2017). In this context, risk refers above all to <strong>the</strong> possible<br />

negative consequences for <strong>the</strong> company’s bus<strong>in</strong>ess activity <strong>and</strong> profitability <strong>in</strong> <strong>the</strong> respective<br />

foreign market due to unforeseen changes <strong>in</strong> <strong>the</strong> bus<strong>in</strong>ess environment (March/Shapira 1987;<br />

Al Khattab et al. 2007). <strong>The</strong> bus<strong>in</strong>ess environment refers to all variables that def<strong>in</strong>e <strong>the</strong> framework<br />

for entrepreneurial activity <strong>in</strong> a particular market, <strong>and</strong> <strong>in</strong>cludes both microeconomic <strong>and</strong><br />

8 Wirtschaft und <strong>Management</strong> · B<strong>and</strong> 33 · März 2023


From Conflict to <strong>War</strong> <strong>in</strong> Ukra<strong>in</strong>e. <strong>The</strong> New Realities of <strong>Political</strong> Risk <strong>Management</strong> <strong>in</strong> <strong>the</strong> post-Soviet space<br />

macroeconomic <strong>in</strong>dicators, as well as those found <strong>in</strong> political <strong>and</strong> <strong>in</strong>stitutional environments<br />

(van Wyk 2010).<br />

From a bus<strong>in</strong>ess perspective, <strong>the</strong>re are three areas relevant to identify<strong>in</strong>g risk factors that can<br />

have a negative impact on bus<strong>in</strong>ess: <strong>the</strong>se are firm-specific factors, <strong>the</strong> <strong>in</strong>dustry <strong>and</strong>, as a third<br />

area, <strong>the</strong> general environment of <strong>the</strong> company <strong>in</strong> <strong>the</strong> foreign market (Miller 1992, 1993; Werner<br />

et al. 1996). While <strong>the</strong> <strong>in</strong>dustry <strong>and</strong> firm-specific variables have been well studied, <strong>the</strong> general<br />

environment <strong>in</strong> particular often rema<strong>in</strong>s underexposed, even though it subsumes two key factors<br />

which can have a tremendous impact on <strong>the</strong> bus<strong>in</strong>ess, namely <strong>the</strong> political <strong>and</strong> <strong>in</strong>stitutional<br />

framework of a market (Lawton/Rajwani 2015; Grosse 2011). This non-market environment describes<br />

all those <strong>in</strong>fluenc<strong>in</strong>g variables not subsumed <strong>in</strong> an economic context, i.e., that do not follow<br />

market logic, but <strong>in</strong>stead f<strong>in</strong>d <strong>the</strong>mselves <strong>in</strong> a social <strong>and</strong> political context. To make this very<br />

broad field manageable for companies, this chapter refers to <strong>the</strong> literature on political risks, a<br />

str<strong>and</strong> <strong>in</strong> <strong>in</strong>ternational bus<strong>in</strong>ess studies, dedicated specifically to <strong>the</strong> risk factors of <strong>the</strong> political<br />

environment (Sottilotta 2017). This environment <strong>in</strong>cludes factors such as bureaucratic quality,<br />

judicial <strong>in</strong>dependence <strong>and</strong> <strong>the</strong> rule of law, transparency <strong>in</strong> public tenders, or <strong>the</strong> importance <strong>and</strong><br />

<strong>in</strong>fluence of <strong>in</strong>formal networks, <strong>and</strong> geopolitical factors as well as diplomatic relations (etc.).<br />

<strong>The</strong> more transparent <strong>and</strong> predictable <strong>the</strong> political <strong>and</strong> <strong>in</strong>stitutional environment, <strong>the</strong> better a<br />

company can adapt to general conditions <strong>and</strong> optimise processes to work as efficiently as possible.<br />

Aga<strong>in</strong>st <strong>the</strong> backdrop of this, political risk refers to all factors related to <strong>the</strong> political environment<br />

<strong>in</strong> <strong>the</strong> country itself <strong>and</strong> beyond at <strong>the</strong> global/geopolitical level with a potential negative<br />

impact on enterprises.<br />

<strong>Political</strong> risks can be identified at three different levels of analysis: <strong>the</strong> geopolitical level, <strong>the</strong><br />

macro level – whereby fur<strong>the</strong>r differentiations can be made between <strong>in</strong>ternal <strong>and</strong> external factors<br />

– <strong>and</strong> <strong>the</strong> micro level. At <strong>the</strong> geopolitical level, factors such as global terror, geopolitical power<br />

strategies from different countries, or even global conflicts are exam<strong>in</strong>ed more closely <strong>and</strong> <strong>the</strong>ir<br />

possible effects on <strong>the</strong> company exam<strong>in</strong>ed. <strong>The</strong> micro level deals selectively with those market<br />

risk factors specifically relevant to a s<strong>in</strong>gle company or project. <strong>The</strong> macro level, on <strong>the</strong> o<strong>the</strong>r<br />

h<strong>and</strong>, deals with <strong>the</strong> political risk factors that arise <strong>in</strong> a country due to domestic <strong>and</strong> foreign<br />

policy dynamics, but also due to specific regime typology (Robock 1971; Alon/Mart<strong>in</strong> 1998; de<br />

la Torre/Neckar 1988).<br />

At <strong>the</strong> macro level, external political risks <strong>in</strong>clude factors such as regional or bilateral conflicts<br />

or <strong>the</strong> quality of diplomatic relations. Of equal importance may also be <strong>the</strong> basic ideology <strong>and</strong><br />

agenda <strong>in</strong> comparison with <strong>in</strong>ternational companies <strong>in</strong> a particular foreign market. <strong>The</strong> more<br />

hostile <strong>the</strong> political attitude towards <strong>in</strong>ternational companies, <strong>the</strong> higher <strong>the</strong> political risk (Kobr<strong>in</strong><br />

1979). <strong>The</strong> external factors refer to all those risk factors aris<strong>in</strong>g from <strong>the</strong> foreign policy dynamics<br />

of a country.<br />

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Hannes Meissner / Johannes Leitner<br />

Table 1: Different Levels of Analysis<br />

Level of Analysis<br />

.<br />

Geopolitical Risk Factors (MIGA 2015)<br />

Macropolitical Risk Factors<br />

(Robock , 1971; Alon & Mart<strong>in</strong>, 1998)<br />

.<br />

Internal (de la Torre et al 1988)<br />

<strong>Political</strong> stability (Miller 1992)<br />

Systemic Corruption (Meissner 2017)<br />

.<br />

Systemic Favouritism (Meissner 2017)<br />

Institutional Ambiguity (Meissner 2017)<br />

External (de la Torre et al 1988)<br />

Regional, Bilateral<br />

Conflicts <strong>and</strong> Diplomatic<br />

Ties (Alon & Mart<strong>in</strong> 1998)<br />

Host country‘s attitude<br />

towards <strong>in</strong>ternational<br />

companies (Kobr<strong>in</strong> 1980)<br />

Micropolitical Risk Factors<br />

(Robock 1971, Alon & Mart<strong>in</strong> 1998)<br />

.<br />

Source: Own illustration<br />

In contrast, <strong>the</strong> <strong>in</strong>ternal perspective focuses on those factors result<strong>in</strong>g from <strong>the</strong> domestic<br />

political constellation. This <strong>in</strong>cludes, for example, political stability, which comprises factors<br />

such as <strong>in</strong>surrections or strikes, but also to what extent a state can exercise its monopoly of<br />

power throughout <strong>the</strong> state territory, or how regulated regime change takes place <strong>in</strong> a state<br />

(Miller 1992). <strong>The</strong> question of <strong>the</strong> specific political risks of differently structured democracy<br />

constellations is also discussed <strong>in</strong> this area (Jensen 2008; Jensen et al. 2013).<br />

In fact, however, <strong>the</strong> different levels of analysis are ideal types. Ra<strong>the</strong>r, it is often difficult to draw<br />

a clear dist<strong>in</strong>ction. Geopolitical factors may provoke reactions by governments, which vice-versa<br />

<strong>in</strong>fluence <strong>the</strong> diplomatic arena. This shows that geopolitical factors are often <strong>in</strong>tertw<strong>in</strong>ed with<br />

<strong>the</strong> macro level, especially <strong>in</strong> regard to <strong>the</strong> external dimension. Geopolitical factors might viceversa<br />

trigger civil unrest <strong>and</strong> political <strong>in</strong>stability <strong>in</strong> a given country <strong>and</strong> thus <strong>in</strong>fluence <strong>the</strong> <strong>in</strong>ternal<br />

dimension at <strong>the</strong> macro level. And f<strong>in</strong>ally, some of <strong>the</strong>se factors might have a strong impact<br />

on specific companies <strong>and</strong> projects, while o<strong>the</strong>r companies might not, or to a lesser degree be<br />

affected. In o<strong>the</strong>r words, <strong>the</strong> macro- <strong>and</strong> <strong>the</strong> micro-level are <strong>in</strong> turn <strong>in</strong>terrelated aga<strong>in</strong>. Acknowledg<strong>in</strong>g<br />

<strong>the</strong>ses <strong>in</strong>terdependencies, <strong>the</strong> present chapter puts a major focus on geopolitical <strong>and</strong><br />

external factors at <strong>the</strong> macro-level, while also consider<strong>in</strong>g political risk factors related to <strong>the</strong><br />

<strong>in</strong>ternal dimension <strong>and</strong>/or <strong>the</strong> micro-level.<br />

10 Wirtschaft und <strong>Management</strong> · B<strong>and</strong> 33 · März 2023


From Conflict to <strong>War</strong> <strong>in</strong> Ukra<strong>in</strong>e. <strong>The</strong> New Realities of <strong>Political</strong> Risk <strong>Management</strong> <strong>in</strong> <strong>the</strong> post-Soviet space<br />

3 Methodology<br />

<strong>The</strong> questions of <strong>the</strong> empirical study have already been presented <strong>in</strong> <strong>the</strong> <strong>in</strong>troduction (section<br />

one). <strong>The</strong>y all focus on perceptions, experiences <strong>and</strong> narratives of bus<strong>in</strong>ess managers <strong>and</strong> representatives<br />

of bus<strong>in</strong>ess associations operat<strong>in</strong>g <strong>in</strong> <strong>the</strong> field. More specifically, <strong>the</strong>y deal with<br />

<strong>the</strong>ir perceptions of political risk, <strong>the</strong> conflict between <strong>the</strong> E<strong>EU</strong>/Russia <strong>and</strong> <strong>the</strong> <strong>EU</strong> <strong>in</strong> general, <strong>the</strong><br />

conflict’s root causes, <strong>and</strong> political risk management strategies applied <strong>in</strong> this conflict constellation.<br />

Aga<strong>in</strong>st <strong>the</strong> backdrop of this, <strong>the</strong> authors have applied a qualitative-<strong>in</strong>terpretive research<br />

methodology (cf. Attesl<strong>and</strong>er 2010; Diekman 2014).<br />

We developed <strong>the</strong> empirical study <strong>in</strong> three steps (see table two). Start<strong>in</strong>g from a literature review<br />

<strong>and</strong> draw<strong>in</strong>g on our experiences from previous field trips to Ukra<strong>in</strong>e <strong>in</strong> 2013 <strong>and</strong> 2017, we drafted<br />

a partially structured <strong>in</strong>terview guidel<strong>in</strong>e with questions structured along four <strong>the</strong>matic sections:<br />

firstly, <strong>the</strong> perception of political risks at <strong>the</strong> geopolitical <strong>and</strong> macro/external level, secondly, <strong>the</strong><br />

perception of <strong>the</strong> conflict <strong>in</strong> general, thirdly, <strong>the</strong> management of political risks, <strong>and</strong> fourthly, <strong>the</strong><br />

perception of <strong>the</strong> root causes of <strong>the</strong> conflict. All questions were formulated as precise, but also<br />

as open as possible, to motivate <strong>the</strong> <strong>in</strong>terview partners to a free <strong>and</strong> yet targeted way of narration.<br />

Table 2: Research Process<br />

Preparation<br />

• Semistructured<br />

Interviews<br />

• Managers<br />

responsible for<br />

Ukra<strong>in</strong>e<br />

Bus<strong>in</strong>ess<br />

• Diverse<br />

Industries<br />

Collection<br />

• Kiev, October 2021<br />

• Typ<strong>in</strong>g<br />

• English & German<br />

• 10 face2face<br />

Interviews<br />

Analysis <strong>and</strong><br />

Interpretation<br />

• Interpretative<br />

Approach<br />

• Deductive<br />

Approach<br />

• Intersubjective<br />

Approach<br />

Source: Own Illustration<br />

In preparation of <strong>the</strong> field trip, we selected managers from as diverse a range of <strong>in</strong>dustry as<br />

possible to carry out 10 qualitative <strong>in</strong>terviews <strong>in</strong> Kiev. All <strong>in</strong>terviews were done anonymously <strong>in</strong><br />

Kiev <strong>in</strong> October 2021. In <strong>the</strong> end, we carried out <strong>in</strong>terviews with, (1) <strong>the</strong> manager of a consult<strong>in</strong>g<br />

group, (2) <strong>the</strong> manager of an <strong>in</strong>surance company, (3) <strong>the</strong> country representative of an <strong>in</strong>ternational<br />

bus<strong>in</strong>ess association, (4) <strong>the</strong> manager of a US mult<strong>in</strong>ational company, (5) <strong>the</strong> manager of<br />

an Austrian based <strong>in</strong>dustry company, (6) <strong>the</strong> manager of an Austrian agricultural company, (7)<br />

<strong>the</strong> manager of a technology company, (8) <strong>the</strong> manager of a high-tech company, (9) <strong>the</strong> executive<br />

of a consumer electronics company, <strong>and</strong> (10) <strong>the</strong> manager of a water-technology company.<br />

<strong>The</strong> personal <strong>in</strong>terviews were directly transcribed <strong>in</strong> Kiev with a laptop. <strong>The</strong> discussions lasted<br />

between 45 <strong>and</strong> 90 m<strong>in</strong>utes <strong>and</strong> were conducted <strong>in</strong> ei<strong>the</strong>r German or English.<br />

<strong>The</strong> material was f<strong>in</strong>ally evaluated <strong>in</strong> Vienna. <strong>The</strong> correspond<strong>in</strong>g passages were coded <strong>in</strong> two<br />

evaluation rounds by two people with different discipl<strong>in</strong>ary backgrounds, political science, <strong>and</strong><br />

Wirtschaft und <strong>Management</strong> · B<strong>and</strong> 33 · März 2023<br />

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Hannes Meissner / Johannes Leitner<br />

<strong>in</strong>ternational bus<strong>in</strong>ess adm<strong>in</strong>istration. By do<strong>in</strong>g so, we tried to ensure an <strong>in</strong>tersubjective relativisation<br />

<strong>in</strong> <strong>the</strong> <strong>in</strong>terpretation, which contributed to a reliable result. In do<strong>in</strong>g so, we used a deductive<br />

approach, <strong>in</strong> that we had previously def<strong>in</strong>ed literary categories, but also took up categories<br />

newly developed from <strong>the</strong> material (Mayr<strong>in</strong>g 2015).<br />

4 <strong>Political</strong> risk constellation prior to 24 February 2022<br />

We conducted <strong>the</strong> <strong>in</strong>terviews only three months prior to <strong>the</strong> <strong>in</strong>vasion of Russia <strong>in</strong> Ukra<strong>in</strong>e. <strong>The</strong><br />

atmosphere among <strong>the</strong> bus<strong>in</strong>ess elite was already tense, but still, none of our <strong>in</strong>terview partners<br />

expected a full-scale war of <strong>the</strong> current dimension. <strong>The</strong> basic attitude was ra<strong>the</strong>r that “what<br />

must not happen, cannot happen <strong>and</strong> thus will not happen”. <strong>The</strong> bus<strong>in</strong>ess representatives we<br />

spoke to were aware that an open war between Russia <strong>and</strong> Ukra<strong>in</strong>e would be <strong>the</strong> worst-case<br />

political risk constellation, s<strong>in</strong>ce this would be a direct <strong>and</strong> immediate threat to all <strong>the</strong>ir bus<strong>in</strong>ess<br />

operations. As <strong>the</strong> country representative of an <strong>in</strong>ternational bus<strong>in</strong>ess association emphasized,<br />

all enterprises active <strong>in</strong> Ukra<strong>in</strong>e have taken <strong>the</strong> decision to enter <strong>the</strong> market, despite <strong>the</strong> conflict<br />

with Russia. As he fur<strong>the</strong>r put it, <strong>the</strong> evaluation of <strong>the</strong> risk of fur<strong>the</strong>r escalation to war is always<br />

based on <strong>in</strong>dividual perceptions. <strong>The</strong> ones not ready to bear this risk did not come to Ukra<strong>in</strong>e,<br />

he emphasized. At <strong>the</strong> same time, <strong>the</strong> scenario of a war haunted <strong>the</strong> m<strong>in</strong>ds of some of our <strong>in</strong>terview<br />

partners. For example, <strong>the</strong> country representative of an <strong>in</strong>ternational bus<strong>in</strong>ess association<br />

concluded on his own that Russia would most likely not attack Ukra<strong>in</strong>e from <strong>the</strong> East, what most<br />

people would expect, but ra<strong>the</strong>r from <strong>the</strong> North via Chernobyl, s<strong>in</strong>ce this is only one hour drive<br />

from Kiev. Thus, Russian troops could be <strong>in</strong> Kiev <strong>in</strong> short time. If this scenario came true, bus<strong>in</strong>esses<br />

based <strong>in</strong> Ukra<strong>in</strong>e would not have enough time to prepare.<br />

Aga<strong>in</strong>st <strong>the</strong> backdrop of loom<strong>in</strong>g geopolitical risks of a war between Russia <strong>and</strong> Ukra<strong>in</strong>e, <strong>in</strong>terviewees<br />

with a closer personal attachment to <strong>the</strong> country focused on <strong>the</strong> positive developments<br />

<strong>and</strong> achievements of Ukra<strong>in</strong>e. Accord<strong>in</strong>g to <strong>the</strong> representative of an <strong>in</strong>ternational bus<strong>in</strong>ess association,<br />

<strong>in</strong> <strong>the</strong> last years, Ukra<strong>in</strong>e has attracted <strong>in</strong>creas<strong>in</strong>g FDI <strong>and</strong> has also achieved significant<br />

progress <strong>in</strong> reduc<strong>in</strong>g corruption. This narrative had also been reiterated by <strong>the</strong> manager of a<br />

consult<strong>in</strong>g group active <strong>in</strong> <strong>the</strong> entire region. Ukra<strong>in</strong>e has improved a lot when it comes to corruption,<br />

<strong>the</strong> state bureaucracy works more efficiently, <strong>in</strong>ternal political risks are decreas<strong>in</strong>g. As he<br />

fur<strong>the</strong>r stated, <strong>the</strong> IT <strong>in</strong>dustry is boom<strong>in</strong>g, salaries are on <strong>the</strong> rise <strong>and</strong> <strong>in</strong>ternational <strong>in</strong>vestments<br />

<strong>in</strong>to <strong>the</strong> sector are grow<strong>in</strong>g significantly. A similar scenario was mentioned by <strong>the</strong> manager of<br />

an <strong>in</strong>ternational <strong>in</strong>surance company who said that despite all political risks, <strong>the</strong>ir bus<strong>in</strong>ess <strong>in</strong><br />

Ukra<strong>in</strong>e develops very favourably. All three <strong>in</strong>terview partners contrasted this positive picture of<br />

Ukra<strong>in</strong>e with <strong>the</strong> developments <strong>in</strong> Russia.<br />

<strong>The</strong> extent to which this positive picture corresponded to reality was difficult to assess. It is worth<br />

mention<strong>in</strong>g that <strong>in</strong> terms of political risk country levels, <strong>the</strong> literature analys<strong>in</strong>g Ukra<strong>in</strong>e s<strong>in</strong>ce <strong>the</strong><br />

Maidan revolution, speaks ra<strong>the</strong>r a different language. In fact, <strong>the</strong>re is a common underst<strong>and</strong><strong>in</strong>g<br />

that <strong>in</strong>itial hopes for far reach<strong>in</strong>g structural reforms were all not met. None of <strong>the</strong> post-Maidan<br />

12 Wirtschaft und <strong>Management</strong> · B<strong>and</strong> 33 · März 2023


From Conflict to <strong>War</strong> <strong>in</strong> Ukra<strong>in</strong>e. <strong>The</strong> New Realities of <strong>Political</strong> Risk <strong>Management</strong> <strong>in</strong> <strong>the</strong> post-Soviet space<br />

presidents <strong>and</strong> governments have shown will<strong>in</strong>g <strong>and</strong> capable of break<strong>in</strong>g with <strong>the</strong> traditions of<br />

corruption <strong>and</strong> captured judiciary. <strong>The</strong> Bertelsmann Transformation 2022 Index reports, until<br />

recently, that “property rights are weakly protected due to deficiencies <strong>in</strong> <strong>the</strong> judicial system <strong>and</strong><br />

extensive corruption. This situation is chang<strong>in</strong>g slowly due to ongo<strong>in</strong>g reform efforts, <strong>in</strong>clud<strong>in</strong>g<br />

<strong>the</strong> creation of anti-corruption <strong>in</strong>stitutions, <strong>the</strong> ongo<strong>in</strong>g judicial reform, multiple anti-raid<strong>in</strong>g laws<br />

<strong>and</strong> laws streng<strong>the</strong>n<strong>in</strong>g <strong>in</strong>tellectual property rights.” (BTI 2022: 25)<br />

However, it was not <strong>the</strong> aim of our research project to render an objective analysis on changes<br />

concern<strong>in</strong>g political risks <strong>in</strong> Ukra<strong>in</strong>e, but ra<strong>the</strong>r analyse <strong>and</strong> deconstruct managers’ perceptions<br />

<strong>and</strong> arguments. In this regard <strong>the</strong> major f<strong>in</strong>d<strong>in</strong>g was that <strong>the</strong> positions <strong>the</strong>y expressed were<br />

shaped by a strong polarisation <strong>in</strong> terms of <strong>the</strong> results of contradict<strong>in</strong>g development paths of<br />

Ukra<strong>in</strong>e <strong>and</strong> Russia. At <strong>the</strong> same time, our <strong>in</strong>terview partners po<strong>in</strong>ted to security risks for Ukra<strong>in</strong>e<br />

result<strong>in</strong>g from this confrontation. <strong>The</strong> biggest threat for Ukra<strong>in</strong>e, accord<strong>in</strong>g to <strong>the</strong> manager of<br />

an <strong>in</strong>ternational <strong>in</strong>surance company, is <strong>the</strong> ris<strong>in</strong>g aggression of Russia. Russia, he expla<strong>in</strong>ed, is<br />

extremely afraid of Ukra<strong>in</strong>e be<strong>in</strong>g successful, because it will lead Put<strong>in</strong> <strong>in</strong>to <strong>the</strong> trap of hav<strong>in</strong>g<br />

to expla<strong>in</strong> why “people do live wealthier <strong>in</strong> democracies than under his rule”, so <strong>the</strong> source. <strong>The</strong><br />

representative of an <strong>in</strong>ternational bus<strong>in</strong>ess association confirmed this argument by stat<strong>in</strong>g that<br />

Put<strong>in</strong> needs to create an enemy <strong>in</strong> <strong>the</strong> West to save <strong>the</strong> country from break<strong>in</strong>g apart. Russia’s<br />

elite, accord<strong>in</strong>g to him, is <strong>in</strong>creas<strong>in</strong>gly leav<strong>in</strong>g <strong>the</strong> country <strong>and</strong> seeks a brighter future abroad.<br />

Put<strong>in</strong>’s daughters are <strong>the</strong> best <strong>and</strong> most strik<strong>in</strong>g example of this trend. This is why Put<strong>in</strong> has<br />

been creat<strong>in</strong>g <strong>the</strong> threat of NATO that wants to destroy Russia, he concluded. While our <strong>in</strong>terview<br />

partner took this position for himself, he fur<strong>the</strong>r highlighted that people <strong>in</strong> Ukra<strong>in</strong>e, like <strong>in</strong><br />

Germany (<strong>and</strong> Austria), do not all follow this l<strong>in</strong>e of argumentation. He remarked that <strong>the</strong> counterargument<br />

is ra<strong>the</strong>r that <strong>the</strong> West, <strong>in</strong> particular <strong>the</strong> USA <strong>and</strong> <strong>the</strong> NATO have openly <strong>and</strong> <strong>in</strong>creas<strong>in</strong>gly<br />

been violat<strong>in</strong>g Russian security <strong>in</strong>terests, aga<strong>in</strong>st <strong>in</strong>itial promises not to enlarge <strong>the</strong> NATO<br />

by Eastern European Countries. In this regard, <strong>the</strong> West would have crossed a red l<strong>in</strong>e, when <strong>the</strong><br />

NATO took <strong>in</strong>to consideration a future NATO membership of Ukra<strong>in</strong>e <strong>and</strong> started negotiations.<br />

<strong>The</strong>se perceptions relate to <strong>the</strong> question of <strong>the</strong> conflict’s root causes. In this respect, <strong>the</strong> picture<br />

we found was <strong>in</strong>deed mixed. While half of <strong>the</strong> <strong>in</strong>terviewees shared <strong>the</strong> first position raised above,<br />

<strong>the</strong> o<strong>the</strong>r half took <strong>the</strong> opposite position. <strong>The</strong>y were of <strong>the</strong> op<strong>in</strong>ion that <strong>the</strong> NATO expansion<br />

<strong>in</strong>to Russia’s Near Abroad is <strong>in</strong> fact responsible for <strong>the</strong> conflict between <strong>the</strong> <strong>EU</strong> <strong>and</strong> Russia.<br />

Accord<strong>in</strong>g to this view, <strong>the</strong> NATO is a legacy of <strong>the</strong> cold war. Instead of dissolv<strong>in</strong>g <strong>the</strong> organisation<br />

<strong>and</strong> establish<strong>in</strong>g a new European security order <strong>in</strong>clud<strong>in</strong>g Russia, <strong>the</strong> organisation step by<br />

step exp<strong>and</strong>ed <strong>in</strong>to <strong>the</strong> east, contrary to <strong>in</strong>itial assurances towards Moscow. In <strong>the</strong> m<strong>in</strong>dset of<br />

<strong>the</strong> Russian rul<strong>in</strong>g elite, which has its roots vice versa <strong>in</strong> <strong>the</strong> former Soviet cold war order this is<br />

actually perceived as a threat. Here, Western politicians lack <strong>the</strong> basic underst<strong>and</strong><strong>in</strong>g of “Russian<br />

mentality”.<br />

Although none of our <strong>in</strong>terview partners expected a full-scale war with Russia, <strong>the</strong> conflict<br />

seemed to be much more present <strong>in</strong> people’s m<strong>in</strong>ds than <strong>in</strong> 2017. <strong>The</strong> failure to resolve <strong>the</strong> conflict<br />

<strong>and</strong> <strong>the</strong> grow<strong>in</strong>g war rhetoric made geopolitical risk factors more important <strong>in</strong> <strong>the</strong> perception<br />

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Hannes Meissner / Johannes Leitner<br />

than before. In contrast to prior research, we had conducted <strong>in</strong> Ukra<strong>in</strong>e, <strong>the</strong>y hardly constructed<br />

references to <strong>in</strong>ternal political risks, such as corruption, dis-favouritism, legal uncerta<strong>in</strong>ty <strong>and</strong><br />

a low guarantee of property. Dur<strong>in</strong>g our field research <strong>in</strong> Kiev <strong>in</strong> 2017, only three years after <strong>the</strong><br />

annexation of Crimea <strong>and</strong> <strong>in</strong>spite of <strong>the</strong> ongo<strong>in</strong>g conflict <strong>in</strong> Eastern Ukra<strong>in</strong>e, managers mostly<br />

mentioned <strong>the</strong> <strong>in</strong>ternal political risks as more important <strong>and</strong> to be a higher obstacle to bus<strong>in</strong>ess<br />

than external political risks, i.e., <strong>the</strong> conflict with Russia <strong>and</strong> <strong>the</strong> war <strong>in</strong> Eastern Ukra<strong>in</strong>e. Concern<strong>in</strong>g<br />

this, we now experienced an atmosphere of ris<strong>in</strong>g worry <strong>and</strong> nervosity <strong>in</strong> our discussions<br />

with <strong>the</strong> bus<strong>in</strong>ess managers, when talk<strong>in</strong>g about <strong>the</strong> fact that <strong>the</strong> conflict parties have proved<br />

unwill<strong>in</strong>g to f<strong>in</strong>d an agreement with<strong>in</strong> <strong>the</strong> M<strong>in</strong>sk format. In this regard, <strong>the</strong>y feared that Russia<br />

might lose patience <strong>and</strong> apply a more radical strategy <strong>in</strong> future.<br />

<strong>The</strong>re is ano<strong>the</strong>r group of managers of <strong>in</strong>ternational companies active <strong>in</strong> Ukra<strong>in</strong>e, but also Russia,<br />

who highlight <strong>the</strong> <strong>in</strong>creas<strong>in</strong>g difficulties <strong>the</strong>y face concern<strong>in</strong>g <strong>the</strong>ir bus<strong>in</strong>ess operations. For<br />

example, <strong>the</strong> manager of an Austrian based <strong>in</strong>dustry company said that “despite <strong>the</strong> deteriorat<strong>in</strong>g<br />

diplomatic relations with Russia, we are do<strong>in</strong>g very profitable bus<strong>in</strong>ess <strong>in</strong> Russia” <strong>and</strong> added that<br />

<strong>the</strong> biggest two risks would be sanctions <strong>and</strong> reputation risks. A similar argument was brought<br />

forward by a representative from ano<strong>the</strong>r Austrian company <strong>in</strong> <strong>the</strong> agricultural <strong>in</strong>dustry. <strong>The</strong>y<br />

had just recently closed a huge <strong>in</strong>vestment <strong>in</strong> Russia toge<strong>the</strong>r with a US jo<strong>in</strong>t venture partner,<br />

<strong>the</strong>refore <strong>the</strong>y were extremely exposed to sanctions risks. <strong>The</strong> manager of a technology company<br />

<strong>in</strong> Ukra<strong>in</strong>e reported <strong>the</strong>y were very nervous because of <strong>the</strong> <strong>in</strong>creas<strong>in</strong>g negative dynamic<br />

between Russia <strong>and</strong> Ukra<strong>in</strong>e but also Europe/NATO/USA. However, <strong>the</strong>y did not primarily refer<br />

to related security risks, but ra<strong>the</strong>r emphasized reputation <strong>and</strong> sanction risks <strong>the</strong>y would face. In<br />

this regard, <strong>the</strong>ir ma<strong>in</strong> worries addressed <strong>the</strong>ir bus<strong>in</strong>ess operations with Russia, s<strong>in</strong>ce <strong>the</strong>ir market<br />

presence plays by size a more important role than <strong>in</strong> <strong>the</strong> Ukra<strong>in</strong>e. Ano<strong>the</strong>r issue our <strong>in</strong>terview<br />

partners referred to were supply cha<strong>in</strong> risks that might emerge <strong>in</strong> case of fur<strong>the</strong>r conflict escalation<br />

between Russia <strong>and</strong> Ukra<strong>in</strong>e. Some producers <strong>in</strong> Ukra<strong>in</strong>e need raw materials from Russia<br />

<strong>and</strong> without supplies from Russia, <strong>the</strong>y would have to stop <strong>the</strong>ir operations <strong>in</strong> Ukra<strong>in</strong>e.<br />

Given <strong>the</strong> rise of importance of geopolitical risks <strong>in</strong> <strong>the</strong> perceptions of our bus<strong>in</strong>ess partners,<br />

it was no surprise that <strong>the</strong>ir statements on <strong>the</strong> political risk management strategies <strong>the</strong>y apply<br />

<strong>in</strong> Ukra<strong>in</strong>e, first <strong>and</strong> foremost focused on <strong>the</strong> threat of fur<strong>the</strong>r conflict escalation. For example,<br />

<strong>the</strong> manager of a US mult<strong>in</strong>ational company with factories <strong>in</strong> Western Ukra<strong>in</strong>e stressed that<br />

Ukra<strong>in</strong>e is a promis<strong>in</strong>g bus<strong>in</strong>ess hub with high potential, but that <strong>the</strong>y are prepar<strong>in</strong>g <strong>the</strong>mselves<br />

for scenarios which also <strong>in</strong>volve a war between Russia <strong>and</strong> Ukra<strong>in</strong>e. <strong>The</strong> highest priority <strong>in</strong> such a<br />

situation would be to protect <strong>the</strong>ir employees, but also to enable production as long as possible.<br />

Additionally, logistics would likely suffer. At <strong>the</strong> same time, it would be necessary to susta<strong>in</strong> <strong>the</strong><br />

supply of raw materials <strong>and</strong> guarantee <strong>the</strong> transport of <strong>the</strong> f<strong>in</strong>al product out of Ukra<strong>in</strong>e. Hav<strong>in</strong>g<br />

<strong>in</strong> m<strong>in</strong>d an escalation of <strong>the</strong> conflict with Russia, <strong>the</strong> same manager said that “<strong>the</strong> Ukra<strong>in</strong>ian<br />

workforce is highly committed” to cont<strong>in</strong>ue production under any circumstances.<br />

Despite <strong>the</strong> ra<strong>the</strong>r positive evaluation of bus<strong>in</strong>ess <strong>in</strong> Ukra<strong>in</strong>e, <strong>and</strong> even though <strong>the</strong>y did not r eally<br />

believe <strong>in</strong> a full-scale war with Russia, companies were prepar<strong>in</strong>g or had been prepar<strong>in</strong>g for more<br />

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From Conflict to <strong>War</strong> <strong>in</strong> Ukra<strong>in</strong>e. <strong>The</strong> New Realities of <strong>Political</strong> Risk <strong>Management</strong> <strong>in</strong> <strong>the</strong> post-Soviet space<br />

negative scenarios as well. While <strong>the</strong> manager of a high-tech company argued that <strong>the</strong>y had been<br />

scal<strong>in</strong>g down <strong>the</strong>ir bus<strong>in</strong>ess considerably s<strong>in</strong>ce 2014 because of <strong>the</strong> <strong>in</strong>creas<strong>in</strong>gly un favourable<br />

conditions given geopolitical risks <strong>in</strong> <strong>the</strong> region, ano<strong>the</strong>r manager argued that <strong>the</strong>y had prepared<br />

a cont<strong>in</strong>gency plan. “If <strong>the</strong>re was war <strong>in</strong> Ukra<strong>in</strong>e, we would organize our bus<strong>in</strong>ess from Western<br />

Ukra<strong>in</strong>e. If <strong>the</strong> whole country was conquered, we would manage our operations from Pol<strong>and</strong>”. A<br />

consumer electronics company executive said <strong>the</strong>y had adapted <strong>the</strong>ir organizational structures<br />

years ago by separat<strong>in</strong>g Russia from o<strong>the</strong>r markets <strong>in</strong> <strong>the</strong> region to be more <strong>in</strong>dependent from<br />

<strong>the</strong> developments <strong>in</strong> Russia. In a similar ve<strong>in</strong> <strong>the</strong> manager of a water-technology company said<br />

<strong>the</strong>y would put a stronger focus on Central Asia assum<strong>in</strong>g <strong>the</strong>re will not be any open conflict<br />

soon.<br />

5 Outlook: <strong>The</strong> <strong>Political</strong> Risk Constellation s<strong>in</strong>ce 24 th February<br />

Reports from Kiev <strong>in</strong> <strong>the</strong> days before <strong>the</strong> Russian attack co<strong>in</strong>cided with our experiences from<br />

October 2021. In <strong>the</strong> local population as well as among <strong>the</strong> bus<strong>in</strong>ess elite, not many really believed<br />

<strong>in</strong> a Russian full-scale attack. In <strong>the</strong> end, <strong>the</strong> war took many enterprises unprepared. Ultimately,<br />

<strong>the</strong>y had to develop <strong>and</strong> implement acute emergency plans to safeguard staff <strong>and</strong> employees as<br />

well as <strong>the</strong> most important company resources, for example by hir<strong>in</strong>g private security providers.<br />

Parallelly, <strong>the</strong>y had to develop cont<strong>in</strong>gency plans to ensure company operations <strong>and</strong> safeguard<br />

control to <strong>the</strong> highest degree possible. However, companies are affected very differently by<br />

<strong>the</strong>se political developments. For example, export<strong>in</strong>g companies have a different risk exposure<br />

than companies that have <strong>in</strong>vested locally.<br />

In <strong>the</strong> mid- <strong>and</strong> long-term, companies are to adapt <strong>the</strong>ir organisational structure <strong>and</strong> procedures<br />

to a cont<strong>in</strong>uous situation of uncerta<strong>in</strong>ty. Not only <strong>in</strong> Ukra<strong>in</strong>e, but also <strong>in</strong> <strong>the</strong> o<strong>the</strong>r post-<br />

Soviet states political risks will rise. It currently becomes <strong>in</strong>creas<strong>in</strong>gly clear that Russian president<br />

Vladimir Put<strong>in</strong>’s imperialistic plans do not only refer to Ukra<strong>in</strong>e. It ra<strong>the</strong>r seems that <strong>the</strong><br />

attack on Ukra<strong>in</strong>e is only <strong>the</strong> start<strong>in</strong>g po<strong>in</strong>t of his plans to reorganise <strong>the</strong> post-Soviet region.<br />

S<strong>in</strong>ce <strong>the</strong> dissolution of <strong>the</strong> Soviet Union <strong>in</strong> 1991, Russia has always emphasized that post-<br />

Soviet countries still belong to Moscow’s sphere of <strong>in</strong>fluence. Right after <strong>the</strong> end of <strong>the</strong> Soviet<br />

Union, Moscow proclaimed that <strong>the</strong>y belong to <strong>the</strong> so-called Near Abroad. Until recently, Russia’s<br />

strategy has been to trigger, escalate <strong>and</strong> freeze ethnical-regional conflicts <strong>in</strong> countries<br />

turn<strong>in</strong>g <strong>the</strong>ir back to Russia <strong>and</strong> will<strong>in</strong>g to jo<strong>in</strong> <strong>the</strong> <strong>EU</strong> <strong>and</strong>/or <strong>the</strong> NATO. Moldova (Transnistria),<br />

Azerbaijan ( Nagorno-Karabakh), <strong>and</strong> Georgia (Abkhazia, South-Ossetia) were early examples <strong>in</strong><br />

this context. <strong>The</strong> 2014/15 war <strong>in</strong> Eastern Ukra<strong>in</strong>e <strong>in</strong>itially followed <strong>the</strong> same scheme. However,<br />

with <strong>the</strong> 24 th of February full-scale attack on Ukra<strong>in</strong>e, Russia is turn<strong>in</strong>g over a new leaf. While <strong>the</strong><br />

f<strong>in</strong>al outcome of Put<strong>in</strong>’s project is still not apparent yet, enterprises have to prepare for different<br />

scenarios. In case of Ukra<strong>in</strong>e, it rema<strong>in</strong>s to be seen to what extent <strong>the</strong> country will be able to<br />

resist <strong>the</strong> Russian attack.<br />

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Hannes Meissner / Johannes Leitner<br />

In regard to <strong>the</strong> post-Soviet region as a whole, political risks that have to be managed have<br />

reached a new dimension. However, some rules of <strong>the</strong> game are not entirely new. While Ukra<strong>in</strong>e<br />

has become a battlefield of a proxy war of nutrition, <strong>in</strong>dicators of this dramatic change have been<br />

observable long before February 24 th . <strong>The</strong> August war of 2008, when Russia openly <strong>in</strong>tervened<br />

militarily at <strong>the</strong> side of South Ossetia <strong>and</strong> Abkhazia aga<strong>in</strong>st Georgia, <strong>the</strong> annexation of Crimea<br />

<strong>and</strong> <strong>the</strong> war <strong>in</strong> Eastern Ukra<strong>in</strong>e s<strong>in</strong>ce 2014/15 have been major events affect<strong>in</strong>g bus<strong>in</strong>esses <strong>in</strong><br />

<strong>the</strong> region. <strong>The</strong> latter events resulted <strong>in</strong> <strong>EU</strong> sanctions on Russia <strong>and</strong> Russian countersanctions.<br />

In recent years, <strong>the</strong>se geopolitical risks have added-up to a political risk constellation traditionally<br />

pos<strong>in</strong>g high risks to bus<strong>in</strong>ess operations of European enterprises. <strong>Political</strong> <strong>in</strong>stability, clientelism,<br />

<strong>in</strong>formal practises, legal uncerta<strong>in</strong>ty, a low guarantee of property rights, <strong>and</strong> unresolved<br />

territorial conflicts have been political risks characteristic of <strong>the</strong> region s<strong>in</strong>ce <strong>the</strong> dissolution of<br />

<strong>the</strong> Soviet Union <strong>in</strong> 1991.<br />

<strong>The</strong> <strong>in</strong>stallation of Russia-friendly governments <strong>and</strong> local adm<strong>in</strong>istrations <strong>in</strong> <strong>the</strong> conquered<br />

regions of Ukra<strong>in</strong>e have far reach<strong>in</strong>g effects on <strong>the</strong> local bus<strong>in</strong>ess constellation. <strong>The</strong> current experience<br />

of Western corporate partners <strong>in</strong> <strong>the</strong>se local cases give a first foretaste of what may be<br />

to come elsewhere <strong>in</strong> Ukra<strong>in</strong>e <strong>and</strong> <strong>the</strong> post-Soviet region. Russia is not only tighten<strong>in</strong>g its grip on<br />

Ukra<strong>in</strong>e, but on o<strong>the</strong>r governments <strong>in</strong> <strong>the</strong> region as well. <strong>The</strong> idea of <strong>the</strong> expansion of <strong>the</strong> Union<br />

State between <strong>the</strong> Russian Federation <strong>and</strong> Belarus beyond <strong>the</strong> two countries, as recently put<br />

forward by Lukashenko, potential fur<strong>the</strong>r (military) conflicts <strong>in</strong> pro-Western republics (Moldova,<br />

Georgia, Kyrgyzstan), break<strong>in</strong>g up <strong>in</strong>ner-state conflicts (Uzbekistan, Kazakhstan), <strong>and</strong> responses<br />

by <strong>the</strong> West on <strong>the</strong> new Russian imperialism, will all have a significant impact on enterprises<br />

operat<strong>in</strong>g <strong>in</strong> <strong>the</strong> region.<br />

With Russia’s tighten<strong>in</strong>g grip, Western security <strong>and</strong> management patterns, as well as <strong>the</strong> leverage<br />

of Western embassies <strong>and</strong> trade commissions, will be pushed back <strong>in</strong> <strong>the</strong> <strong>in</strong>dividual countries.<br />

<strong>Political</strong> <strong>in</strong>stability, corruption, deficiencies concern<strong>in</strong>g <strong>the</strong> rule of law will most likely <strong>in</strong>crease.<br />

Under <strong>the</strong> new rulers <strong>in</strong> <strong>the</strong> conquered regions of Ukra<strong>in</strong>e, expropriation measures seem to be<br />

<strong>in</strong>evitable. Such measures can be directed at one’s own company <strong>and</strong>/or important bus<strong>in</strong>ess<br />

partners. At <strong>the</strong> same time, reform pressure by <strong>the</strong> <strong>EU</strong> will decrease <strong>and</strong> trade agreements<br />

with <strong>the</strong> West will become less important <strong>in</strong> countries under Russian control. In <strong>the</strong> Eastern<br />

Partnership region, this particularly concerns <strong>the</strong> Deep <strong>and</strong> Comprehensive Free Trade Agreements<br />

(DCFTA) with <strong>the</strong> <strong>EU</strong>.<br />

<strong>The</strong>se developments need to be analysed, monitored, <strong>and</strong> managed. In any case, companies<br />

firstly have to identify specific risk factors affect<strong>in</strong>g <strong>the</strong>ir company/<strong>the</strong>ir projects. <strong>The</strong>y <strong>the</strong>n<br />

must evaluate <strong>the</strong> possible effects <strong>and</strong> prioritise along <strong>the</strong> dimensions “probability <strong>and</strong> impact”<br />

before f<strong>in</strong>ally develop<strong>in</strong>g <strong>and</strong> implement<strong>in</strong>g mitigation strategies for <strong>the</strong> respective risk constellation.<br />

16 Wirtschaft und <strong>Management</strong> · B<strong>and</strong> 33 · März 2023


From Conflict to <strong>War</strong> <strong>in</strong> Ukra<strong>in</strong>e. <strong>The</strong> New Realities of <strong>Political</strong> Risk <strong>Management</strong> <strong>in</strong> <strong>the</strong> post-Soviet space<br />

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Interviews<br />

(1) <strong>the</strong> manager of a consult<strong>in</strong>g group<br />

(2) <strong>the</strong> manager of an <strong>in</strong>surance company<br />

(3) <strong>the</strong> country representative of an <strong>in</strong>ternational bus<strong>in</strong>ess association<br />

(4) <strong>the</strong> manager of a US mult<strong>in</strong>ational company<br />

(5) <strong>the</strong> manager of an Austrian based <strong>in</strong>dustry company<br />

(6) <strong>the</strong> manager of an Austrian agricultural company<br />

(7) <strong>the</strong> manager of a technology company<br />

(8) <strong>the</strong> manager of a high-tech company<br />

(9) <strong>the</strong> executive from a consumer electronics company<br />

(10) <strong>the</strong> manager of a water-technology company<br />

18 Wirtschaft und <strong>Management</strong> · B<strong>and</strong> 33 · März 2023


Florence Ertel / Julian Plottka<br />

Internal <strong>and</strong> External <strong>Political</strong><br />

Contestation <strong>in</strong> Kazakhstan<br />

Analys<strong>in</strong>g <strong>Political</strong> <strong>Risks</strong> of <strong>the</strong> Kazakh President’s<br />

Foreign <strong>and</strong> Economic Policy Response to<br />

Demonstrators’ Dem<strong>and</strong>s 1<br />

Florence Ertel<br />

University of Passau<br />

1 Introduction<br />

On 1 January 2022, protests aga<strong>in</strong>st <strong>the</strong> price <strong>in</strong>crease of liquefied petroleum<br />

gas (LPG) started <strong>in</strong> <strong>the</strong> Western Kazakh city of Zhanaozen, where a large<br />

proportion of cars run on LPG. With<strong>in</strong> a few days, <strong>the</strong> protests spread across<br />

<strong>the</strong> country <strong>and</strong> led to violent riots, attract<strong>in</strong>g a variety of actors with <strong>the</strong>ir own<br />

political agendas. By <strong>the</strong> time <strong>the</strong> protests ended <strong>in</strong> mid-January, 225 people had<br />

been killed, 4,300 <strong>in</strong>jured (Tagesschau 2022) <strong>and</strong> more than 12,000 arrested (Zeit<br />

Onl<strong>in</strong>e 2022). <strong>The</strong>se figures are based on official data but have not been verified<br />

<strong>in</strong>dependently. Although <strong>the</strong>re is a general tradition of protest <strong>in</strong> Kazakhstan, <strong>the</strong><br />

outbreak of discontent with Kazakh leadership took many observers by surprise.<br />

For years, <strong>the</strong> resource-rich (most notably hydrocarbons <strong>and</strong> uranium) <strong>and</strong> <strong>in</strong><br />

<strong>the</strong> region relatively “free” (Freedom House 2021) 2 country (second after Kyrgyzstan among <strong>the</strong><br />

five Central Asian republics) was considered stable. Aga<strong>in</strong>st this backdrop, <strong>the</strong> question arises if<br />

<strong>in</strong>ternal political contestation <strong>in</strong> Kazakhstan has changed this s<strong>in</strong>ce early 2022.<br />

Julian Plottka<br />

University of Passau<br />

While <strong>the</strong> goals of some protest groups will rema<strong>in</strong> a subject of speculation, <strong>the</strong> majority of<br />

(peaceful) demonstrators were dissatisfied with <strong>the</strong>ir socio-economic situation. In general,<br />

Kazakhstan had a good record of <strong>in</strong>creas<strong>in</strong>g wealth per capita <strong>and</strong> decreas<strong>in</strong>g poverty levels<br />

s<strong>in</strong>ce <strong>in</strong>dependence <strong>in</strong> 1991, be<strong>in</strong>g <strong>the</strong> best performer <strong>in</strong> Central Asia (Braun/Plottka/ Smirnova<br />

2021: 9-10). However, due to <strong>the</strong> global f<strong>in</strong>ancial crisis, <strong>the</strong> economic developments <strong>in</strong> Russia<br />

<strong>and</strong> <strong>the</strong> COVID-19 p<strong>and</strong>emic, <strong>in</strong>come <strong>in</strong>equality had been on <strong>the</strong> rise <strong>in</strong> Kazakhstan s<strong>in</strong>ce 2015<br />

(World Inequality Database 2021). 3 <strong>The</strong>refore, protesters dem<strong>and</strong>ed reforms for a more equitable<br />

distribution of <strong>the</strong> country’s wealth.<br />

<strong>The</strong> demonstrators used <strong>the</strong> slogan “Old man out”, which was addressed to <strong>the</strong> former president<br />

<strong>and</strong> rema<strong>in</strong><strong>in</strong>g power centre beh<strong>in</strong>d <strong>the</strong> scenes, Nursultan Nazarbayev. <strong>The</strong>ir ma<strong>in</strong> issue was<br />

1 <strong>The</strong> article was written <strong>in</strong> August 2022. It, <strong>the</strong>refore, does not cover later events.<br />

2 Freedom House classifies all five Central Asian states as “not free”. However, measur<strong>in</strong>g freedom rights, Turkmenistan<br />

(2/100), Tajikistan (8/100), <strong>and</strong> Uzbekistan (11/100) belong to <strong>the</strong> “worst of <strong>the</strong> worst” on <strong>the</strong> globe. <strong>The</strong>refore,<br />

Kazakhstan – scor<strong>in</strong>g 23 out of 100 possible po<strong>in</strong>ts <strong>in</strong> <strong>the</strong> “Global Freedom Index” – appears to be relatively<br />

“free” compared to all her neighbours.<br />

3 Indicator: Income <strong>in</strong>equality, top 10% share; bottom 50% share.<br />

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Florence Ertel / Julian Plottka<br />

that only corrupt elites profit from <strong>the</strong> wealth of <strong>the</strong> country <strong>in</strong>stead of giv<strong>in</strong>g all citizens <strong>the</strong>ir fair<br />

share. Especially <strong>the</strong> population <strong>in</strong> rural Kazakhstan does not benefit from <strong>the</strong> country’s wealth.<br />

To satisfy <strong>the</strong>se dem<strong>and</strong>s <strong>and</strong> to secure stability <strong>in</strong> <strong>the</strong> country, President Kassym-Jomart<br />

Tokayev is fac<strong>in</strong>g a double challenge: on one h<strong>and</strong>, he has to implement socio-economic reforms<br />

to raise liv<strong>in</strong>g st<strong>and</strong>ards <strong>in</strong> Kazakhstan. On <strong>the</strong> o<strong>the</strong>r h<strong>and</strong>, however, he has to challenge <strong>the</strong><br />

<strong>in</strong>fluence of <strong>the</strong> established elite, which risks los<strong>in</strong>g its wealth <strong>in</strong> economic reforms but rema<strong>in</strong>s<br />

<strong>in</strong>fluential <strong>and</strong> a potential threat to presidential power (Eastblog 2022). 4<br />

Prospects of address<strong>in</strong>g <strong>the</strong>se dem<strong>and</strong>s <strong>and</strong> stabilis<strong>in</strong>g <strong>the</strong> situation <strong>in</strong> Kazakhstan are<br />

worsen<strong>in</strong>g due to <strong>the</strong> Russian war aga<strong>in</strong>st Ukra<strong>in</strong>e. As Kazakhstan is a member state of <strong>the</strong> Eurasian<br />

Economic Union (E<strong>EU</strong>), its economy is closely l<strong>in</strong>ked to that of Russia. <strong>The</strong>refore, Western<br />

sanctions aga<strong>in</strong>st Russia are impair<strong>in</strong>g <strong>the</strong> Kazakh government’s chances to meet citizens’<br />

socio-economic dem<strong>and</strong>s by boost<strong>in</strong>g economic growth. Instead, <strong>the</strong> Russian war has become<br />

ano<strong>the</strong>r crisis <strong>in</strong>fluenc<strong>in</strong>g <strong>the</strong> current trend of decl<strong>in</strong><strong>in</strong>g <strong>in</strong>come equality. Even though commodity<br />

exports account for <strong>the</strong> bulk of Kazakhstan’s foreign trade, <strong>in</strong>creased commodity prices will<br />

not compensate for <strong>the</strong> negative economic effects of <strong>the</strong> Russian recession on Kazakhstan.<br />

In addition to <strong>the</strong> economic fallout from <strong>the</strong> Russian war aga<strong>in</strong>st Ukra<strong>in</strong>e, <strong>in</strong> January 2022<br />

Kazakh President Tokayev added ano<strong>the</strong>r political dimension fur<strong>the</strong>r complicat<strong>in</strong>g his ability<br />

to fulfil Kazakhs’ dem<strong>and</strong>s when he described <strong>the</strong> protestors as terrorist gangs tra<strong>in</strong>ed abroad.<br />

This reference to foreign <strong>in</strong>fluences allowed him to call for <strong>the</strong> temporary deployment of a<br />

peacekeep<strong>in</strong>g force of <strong>the</strong> Collective Security Treaty Organisation (CSTO), a Russian-led <strong>in</strong>ternational<br />

organisation of Eurasian countries. Until January 2022, earlier dem<strong>and</strong>s for military<br />

support by o<strong>the</strong>r member states were always ignored. However, <strong>the</strong> CSTO chairman, Armenian<br />

Prime M<strong>in</strong>ister Nikol Pash<strong>in</strong>yan, immediately agreed to <strong>the</strong> deployment. Russian paratroopers<br />

arrived <strong>in</strong> Kazakhstan <strong>the</strong> very next day. <strong>The</strong> CSTO peacekeep<strong>in</strong>g force also <strong>in</strong>cluded soldiers<br />

from Armenia, Belarus <strong>and</strong> Tajikistan.<br />

S<strong>in</strong>ce <strong>the</strong>n, Kazakhs have been debat<strong>in</strong>g whe<strong>the</strong>r <strong>the</strong> deployment of <strong>the</strong> CSTO troops has fur<strong>the</strong>r<br />

<strong>in</strong>creased <strong>the</strong>ir country’s dependence on Russia, whose <strong>in</strong>fluence is regarded very critically.<br />

Pursu<strong>in</strong>g its traditional multi-vector foreign policy, which tries to balance <strong>the</strong> <strong>in</strong>fluence of<br />

foreign power <strong>in</strong> Kazakhstan, especially to avoid too much dependence on Russia, has become<br />

<strong>in</strong>creas<strong>in</strong>gly difficult for <strong>the</strong> Kazakh government. President Tokayev will now have to balance Russian<br />

expectations <strong>in</strong> foreign policy, <strong>the</strong> <strong>in</strong>direct consequences of Western sanctions aga<strong>in</strong>st Russia<br />

<strong>and</strong> <strong>the</strong> expectations of his citizens. <strong>The</strong> first foreign policy decisions have been marked by<br />

restra<strong>in</strong>t. In addition to citizens’ dem<strong>and</strong> for socio-economic <strong>and</strong> political reform, Kazakhstan’s<br />

geo-political position between Russia <strong>and</strong> <strong>the</strong> European Union (<strong>EU</strong>) – as well as Ch<strong>in</strong>a – is add<strong>in</strong>g<br />

ano<strong>the</strong>r political risk potentially threaten<strong>in</strong>g stability <strong>in</strong> <strong>the</strong> Central Asian country.<br />

4 <strong>The</strong> power politics dimension will not be addressed <strong>in</strong> this article.<br />

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Internal <strong>and</strong> External <strong>Political</strong> Contestation <strong>in</strong> Kazakhstan<br />

In our article, we assess <strong>the</strong> chang<strong>in</strong>g situation <strong>and</strong> analyse <strong>the</strong> political risks result<strong>in</strong>g from<br />

recent developments <strong>in</strong> Kazakhstan. To this end, we present our methodology of political risk<br />

analysis <strong>in</strong> <strong>the</strong> follow<strong>in</strong>g section. In <strong>the</strong> third section, we apply a macro-political analysis before<br />

address<strong>in</strong>g <strong>the</strong> course of Kazakh foreign policy s<strong>in</strong>ce January 2022. In <strong>the</strong> f<strong>in</strong>al section, we<br />

employ a causal analysis approach to assess <strong>the</strong> political risks result<strong>in</strong>g from <strong>the</strong> course of <strong>the</strong><br />

Kazakh president’s current foreign <strong>and</strong> economic policies.<br />

2 Methodology: Analys<strong>in</strong>g <strong>Political</strong> <strong>Risks</strong> of <strong>the</strong> Kazakh President’s Foreign <strong>and</strong> Economic<br />

Policy Response to Demonstrators’ Dem<strong>and</strong>s<br />

Aga<strong>in</strong>st <strong>the</strong> backdrop of <strong>the</strong> events of January 2022, we present a methodology to analyse <strong>the</strong><br />

political risks emerg<strong>in</strong>g from <strong>the</strong> Kazakh president’s foreign <strong>and</strong> economic policy response to<br />

<strong>the</strong> demonstrators’ dem<strong>and</strong>s. In our approach, we follow Giersch (Giersch 2015) <strong>and</strong> focus our<br />

analysis on identify<strong>in</strong>g possible future developments.<br />

In general, risk-based analyses seek to make statements about <strong>the</strong> probability of how certa<strong>in</strong><br />

unfavourable scenarios are likely to occur, what negative impact <strong>the</strong>se scenarios may have if<br />

<strong>the</strong>y occur, <strong>and</strong> what might go wrong (Giersch 2015: 6). More precisely, risk analyses are done<br />

to isolate from <strong>the</strong> multitude of risks those which ought to be taken so seriously that <strong>the</strong>y<br />

should be prevented entirely, or whose probability of occurrence or potential damage should<br />

at least be reduced (Haimes 2009; Renn 2008; Giersch 2015: 2-14). To identify relevant political<br />

risk scenarios, we focus on two methods suggested by Giersch, comb<strong>in</strong><strong>in</strong>g a macro-political<br />

approach with a causality analysis (Giersch 2015: 8).<br />

For <strong>the</strong> macro-political analysis, we look at <strong>the</strong> political, social <strong>and</strong> economic environment<br />

of Kazakhstan. To carry out a risk assessment accord<strong>in</strong>g to this method, <strong>in</strong>dicators must be<br />

selected to measure economic, political <strong>and</strong> social development. In addition to <strong>the</strong> current risk<br />

assessment, <strong>the</strong> political risks of <strong>in</strong>dividual countries can thus also be compared, or a specific<br />

country can be viewed over time (Giersch 2015: 8). <strong>The</strong>refore, we analyse <strong>the</strong> recent socio-economic<br />

development, <strong>the</strong> economic forecasts, <strong>and</strong> <strong>the</strong> Kazakh government’s policy response to<br />

citizens’ economic dem<strong>and</strong>s as well as Kazakhstan’s traditional multi-vector foreign policy. This<br />

is <strong>in</strong>dispensable, especially with regard to its particular geopolitical situation, as <strong>the</strong> multi-vector<br />

foreign policy affects its foreign trade policy, e.g. <strong>the</strong> export of oil <strong>and</strong> gas.<br />

With <strong>the</strong> causal analysis of political risks <strong>in</strong> general, we show <strong>the</strong> causes <strong>and</strong> forms of public<br />

discontent. Accord<strong>in</strong>g to Giersch (Giersch 2015: 8), <strong>the</strong> reasons for discontent can be of religious<br />

or ethnic orig<strong>in</strong> or may arise from social grievances or even corruption by a country’s political<br />

elites. Discontent, <strong>in</strong> turn, can manifest itself <strong>in</strong> <strong>in</strong>dividual protests or regular demonstrations<br />

<strong>and</strong> even violent riots. In addition, <strong>the</strong> government’s reaction <strong>and</strong> its h<strong>and</strong>l<strong>in</strong>g of <strong>the</strong> situation are<br />

also important, i.e. which measures it takes <strong>and</strong> whe<strong>the</strong>r <strong>the</strong>se can also affect foreign companies.<br />

<strong>The</strong>se factors <strong>in</strong>fluence <strong>the</strong> political stability of a country. Ultimately, causal risk analysis<br />

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Florence Ertel / Julian Plottka<br />

seeks to determ<strong>in</strong>e <strong>the</strong> extent to which regime change is possible through <strong>the</strong> co<strong>in</strong>cidence of<br />

various factors (Giersch 2015: 10). In our analysis, we will identify <strong>the</strong> most important issues<br />

aris<strong>in</strong>g from <strong>the</strong> macro-analysis <strong>and</strong> draw conclusions for risk assessment <strong>in</strong> Kazakhstan.<br />

3 Macro-political Analysis: Prospects of <strong>the</strong> Proposed Economic Crisis <strong>Management</strong><br />

Despite <strong>the</strong> uncerta<strong>in</strong>ty regard<strong>in</strong>g <strong>the</strong> objectives of some of <strong>the</strong> groups engag<strong>in</strong>g <strong>in</strong> <strong>the</strong> events<br />

of <strong>the</strong> Kazakh “Bloody January” of 2022, <strong>the</strong> majority of demonstrators expressed <strong>the</strong>ir dissatisfaction<br />

with socio-economic development <strong>in</strong> Kazakhstan <strong>and</strong> <strong>the</strong> unequal distribution of<br />

<strong>the</strong> country’s wealth, ma<strong>in</strong>ly generated by export<strong>in</strong>g hydrocarbons <strong>and</strong> o<strong>the</strong>r raw materials.<br />

<strong>The</strong> liberalisation of trad<strong>in</strong>g LPG on 1 January 2022, result<strong>in</strong>g <strong>in</strong> a steep price rise, was <strong>the</strong><br />

<strong>in</strong>itial trigger for <strong>the</strong> protests <strong>in</strong> Western Kazakhstan, where most cars run on LPG. In an early<br />

response, <strong>the</strong> government accused petrol station owners of profit<strong>in</strong>g from price speculation <strong>and</strong><br />

ordered a cap on <strong>the</strong> LPG price. Nei<strong>the</strong>r <strong>the</strong> price cap nor a later price reduction below <strong>the</strong> level<br />

of 2021 helped to calm down <strong>the</strong> protests. This shows that <strong>the</strong> demonstrators dem<strong>and</strong>ed more<br />

than a mere reduction of <strong>the</strong> price level for LPG.<br />

In his ex-post assessment of <strong>the</strong> events <strong>in</strong> January, <strong>the</strong> Kazakh president upheld his narrative<br />

that <strong>the</strong> protests were hijacked by foreign agents <strong>and</strong> terrorists. However, he also acknowledged<br />

that many demonstrators were peaceful <strong>and</strong> expressed legitimate dem<strong>and</strong>s. <strong>The</strong>se dem<strong>and</strong>s<br />

<strong>in</strong>cluded <strong>the</strong> fight aga<strong>in</strong>st corruption, an <strong>in</strong>vestigation <strong>in</strong>to <strong>the</strong> treatment of protesters dur<strong>in</strong>g <strong>the</strong><br />

“Bloody January” as well as political <strong>and</strong> socio-economic reform. Tokayev took <strong>the</strong> <strong>in</strong>auguration<br />

of <strong>the</strong> new cab<strong>in</strong>et on 11 January 2022 5 as a first opportunity to outl<strong>in</strong>e how <strong>the</strong> new government<br />

would respond to <strong>the</strong>se dem<strong>and</strong>s: <strong>in</strong> his speech, he announced steps to ease anger over<br />

rampant economic <strong>in</strong>equality, a five-year freeze on salaries for top officials <strong>and</strong> <strong>the</strong> elim<strong>in</strong>ation<br />

of corrupt systems widely believed to benefit <strong>the</strong> country’s oligarchs. In a TV <strong>in</strong>terview <strong>in</strong><br />

mid-February 2022, he renewed his commitment to socio-economic reform. Dur<strong>in</strong>g a “Foreign<br />

Investor Council’s Meet<strong>in</strong>g” on 22 February 2022, he declared that “<strong>the</strong> pr<strong>in</strong>cipal idea beh<strong>in</strong>d economic<br />

reforms is not abstract figures of GDP growth <strong>and</strong> place <strong>in</strong> global rank<strong>in</strong>gs but <strong>in</strong>crease<br />

of <strong>in</strong>come <strong>and</strong> liv<strong>in</strong>g st<strong>and</strong>ards” (President of <strong>the</strong> Republic of Kazakhstan 2022a) of <strong>the</strong> Kazakh<br />

people. At least until Russia started its war aga<strong>in</strong>st Ukra<strong>in</strong>e, Tokayev was will<strong>in</strong>g to put economic<br />

<strong>and</strong> social reform high on <strong>the</strong> country’s political agenda.<br />

To assess whe<strong>the</strong>r citizens’ discontent with <strong>the</strong> socioeconomic course of Kazakhstan is a potential<br />

source of fur<strong>the</strong>r unrest <strong>and</strong> <strong>the</strong>refore a political risk, we first put <strong>the</strong> citizens’ dem<strong>and</strong>s <strong>in</strong> a<br />

long-term perspective on Kazakh economic development. Over <strong>the</strong> past twenty years, <strong>the</strong> upper<br />

middle-<strong>in</strong>come country’s success <strong>in</strong> poverty reduction has been considerable. While 62 percent<br />

of <strong>the</strong> population lived on less than USD 5.50 per day <strong>in</strong> 2001, this number was down to just five<br />

percent <strong>in</strong> 2018 (<strong>The</strong> World Bank 2022a). For <strong>the</strong> same period, Kazakhstan has had an overall<br />

5 Tokayev forced <strong>the</strong> previous government, which had been appo<strong>in</strong>ted under <strong>the</strong> rule of <strong>the</strong> former president, to step<br />

down.<br />

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Internal <strong>and</strong> External <strong>Political</strong> Contestation <strong>in</strong> Kazakhstan<br />

positive trend <strong>in</strong> <strong>in</strong>creas<strong>in</strong>gly equal distribution of <strong>in</strong>come (Braun/Plottka/Smirnova 2021: 10).<br />

Fur<strong>the</strong>rmore, unemployment is not a major concern <strong>in</strong> Kazakhstan, as it faces shortage of labour<br />

<strong>and</strong> has become a dest<strong>in</strong>ation for migrant workers from o<strong>the</strong>r Central Asian countries as Russia<br />

has less dem<strong>and</strong> for foreign workers <strong>and</strong> tightened immigration regulations (Braun/ Plottka/<br />

Smirnova 2021: 7). In terms of <strong>in</strong>creas<strong>in</strong>g liv<strong>in</strong>g st<strong>and</strong>ards <strong>and</strong> a fair distribution of wealth,<br />

accord<strong>in</strong>g to official data Kazakhstan is <strong>the</strong> best perform<strong>in</strong>g of <strong>the</strong> five Central Asian states.<br />

While <strong>the</strong> long-term trend <strong>in</strong> Kazakhstan is positive, to a certa<strong>in</strong> degree official data hide <strong>the</strong><br />

actual problem. Consumer <strong>in</strong>debtedness <strong>and</strong> low <strong>in</strong>come among people not work<strong>in</strong>g under traditional<br />

labour contracts, such as <strong>the</strong> pseudo self-employed, are a widespread problem <strong>in</strong> Kazakhstan<br />

(Kudaibergenova/Laruelle 2022: 2-3). However, it is important to note that <strong>the</strong> problem<br />

of social deprivation is ra<strong>the</strong>r relative than absolute, especially compared to <strong>the</strong> liv<strong>in</strong>g st<strong>and</strong>ards<br />

<strong>in</strong> <strong>the</strong> o<strong>the</strong>r Central Asian states (Cornell 2022: 5). While urban elites are benefit<strong>in</strong>g from Kazakhstan’s<br />

wealth, rural workers <strong>in</strong> <strong>the</strong> first sector <strong>and</strong> unemployed citizens are left beh<strong>in</strong>d (Cornell<br />

2022: 5). Among <strong>the</strong>se groups, recent economic developments have fuelled fears that <strong>the</strong>ir economic<br />

prospects might fur<strong>the</strong>r deteriorate <strong>in</strong> <strong>the</strong> near future.<br />

<strong>The</strong> very same factors driv<strong>in</strong>g <strong>the</strong> protest are also major risks that could severely underm<strong>in</strong>e <strong>the</strong><br />

Kazakh president’s ability to deliver on protesters’ dem<strong>and</strong>s for socio-economic reform. A first<br />

such factor is <strong>the</strong> bleak economic outlook, mostly due to <strong>the</strong> external exposure of <strong>the</strong> country’s<br />

economy <strong>and</strong> <strong>the</strong> COVID-19 p<strong>and</strong>emic. As Kazakhstan is a member of <strong>the</strong> E<strong>EU</strong>, its economy<br />

rema<strong>in</strong>s closely l<strong>in</strong>ked to that of Russia. In 2019, 36.67 percent of all imports came from Russia.<br />

As a market, Russia seems less important for <strong>the</strong> Kazakh <strong>in</strong>dustry, with only a share of 9.71<br />

percent of all exports go<strong>in</strong>g to <strong>the</strong> Nor<strong>the</strong>rn neighbour (World Integrated Trade Solution 2022a).<br />

However, a closer look at <strong>the</strong> export structure reveals that exports to Western partners ma<strong>in</strong>ly<br />

<strong>in</strong>clude raw materials, while Ch<strong>in</strong>a (13.55 percent of all exports) (World Integrated Trade Solution<br />

2022b ) <strong>and</strong> Russia (World Integrated Trade Solution 2022c) are <strong>the</strong> biggest markets for o<strong>the</strong>r<br />

products.<br />

Due to its close economic ties with Russia, <strong>the</strong> Kazakh economy has been negatively affected<br />

by Russian economic development s<strong>in</strong>ce 2009. For Russia, <strong>the</strong> global f<strong>in</strong>ancial crisis, Western<br />

reactions to <strong>the</strong> occupation of Crimea <strong>and</strong> <strong>the</strong> COVID-19 p<strong>and</strong>emic have led to economic growth<br />

rates below <strong>the</strong> levels of <strong>the</strong> previous decade or even to negative growth. Overall Kazakh economic<br />

development closely follows that of Russia even though <strong>the</strong> country has managed to<br />

outperform Russia slightly s<strong>in</strong>ce 2010 (<strong>The</strong> World Bank 2022b). Western economic sanctions <strong>in</strong><br />

response to <strong>the</strong> Russian war aga<strong>in</strong>st Ukra<strong>in</strong>e will most likely have an even bigger negative effect<br />

on Kazakhstan than <strong>the</strong> previous economic crisis. This is even more probable as Kazakhstan<br />

has signalled will<strong>in</strong>gness to comply with <strong>the</strong> Western sanctions <strong>and</strong> does not <strong>in</strong>tend to profit<br />

from becom<strong>in</strong>g a backdoor for trade with Russia.<br />

In addition to <strong>the</strong> <strong>in</strong>security caused by <strong>the</strong> Russian war aga<strong>in</strong>st Ukra<strong>in</strong>e, <strong>the</strong> COVID-19 p<strong>and</strong>emic<br />

rema<strong>in</strong>s an important unknown for <strong>the</strong> Kazakh economy. While <strong>the</strong> Kazakh Gross Domestic<br />

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Product (GDP) returned to pre-p<strong>and</strong>emic levels <strong>in</strong> 2021 (World Bank Group 2022: 12), <strong>the</strong> prospect<br />

of future growth is highly dependent on how <strong>the</strong> p<strong>and</strong>emic will develop dur<strong>in</strong>g <strong>the</strong> w<strong>in</strong>ter<br />

2022/2023. Analyses of <strong>the</strong> economic consequences of <strong>the</strong> previous lockdown <strong>in</strong> Kazakhstan<br />

show that measures to conta<strong>in</strong> <strong>the</strong> p<strong>and</strong>emic severely affected <strong>the</strong> services sector, smaller companies<br />

<strong>and</strong> <strong>the</strong> <strong>in</strong>formal sector. <strong>The</strong>y also caused <strong>the</strong> complete shutdown of some <strong>in</strong>dustries<br />

(Khan 2021: 73-74). With Russia <strong>and</strong> Ch<strong>in</strong>a as Kazakhstan’s most important markets for o<strong>the</strong>r<br />

goods than raw materials under economic pressure, national consumption will be key to ma<strong>in</strong>ta<strong>in</strong><br />

pre-p<strong>and</strong>emic levels of economic growth. However, we will show later that current <strong>in</strong>flation<br />

<strong>and</strong> ris<strong>in</strong>g prices <strong>in</strong> Kazakhstan result <strong>in</strong> a negative outlook for strong consumer dem<strong>and</strong>. A<br />

new wave of COVID-19 <strong>in</strong>fections <strong>in</strong> w<strong>in</strong>ter 2022/23 could fur<strong>the</strong>r impede economic re covery <strong>in</strong><br />

Kazakhstan. While <strong>in</strong> February 2022 <strong>the</strong> outlook was still positive as <strong>the</strong> global economy was<br />

recover<strong>in</strong>g from <strong>the</strong> p<strong>and</strong>emic, Kazakhstan will most likely struggle to rema<strong>in</strong> on an economic<br />

growth path that would be necessary to fulfil citizens’ socio-economic dem<strong>and</strong>s.<br />

<strong>The</strong> structure of <strong>the</strong> Kazakh economy is a second risk that could underm<strong>in</strong>e <strong>the</strong> prospect of<br />

mak<strong>in</strong>g Kazakh society more equal <strong>in</strong> <strong>the</strong> long run while benefitt<strong>in</strong>g <strong>the</strong> current president shortterm.<br />

As mentioned before, <strong>the</strong> country is heavily dependent on <strong>the</strong> export of raw materials, which<br />

accounted for 69.34 percent of all exports <strong>in</strong> 2019 (World Integrated Trade Solution 2022d).<br />

Dur<strong>in</strong>g <strong>the</strong> p<strong>and</strong>emic, when global commodity prices were low, <strong>the</strong> Kazakh treasury experienced<br />

<strong>the</strong> downside of this extreme dependency on raw material exports. S<strong>in</strong>ce commodity prices<br />

have reached new heights (World Bank Group 2022: 11), revenues are go<strong>in</strong>g to <strong>in</strong>crease considerably<br />

this year, giv<strong>in</strong>g <strong>the</strong> Kazakh government additional leeway for <strong>in</strong>terventions to stimulate<br />

economic growth. Due to <strong>the</strong> negative economic outlook, however, <strong>the</strong> additional resources will<br />

be needed for emergency measures.<br />

This structure of <strong>the</strong> Kazakh economy entails potential risks for three reasons. First, <strong>the</strong> <strong>in</strong>frastructure<br />

for crude exports is routed to Russia, mak<strong>in</strong>g Kazakhstan politically dependent on its<br />

Nor<strong>the</strong>rn neighbour. As Kazakh pipel<strong>in</strong>es cross<strong>in</strong>g Russia have been shut down twice <strong>in</strong> 2022<br />

(Deutsche Welle 2022a), <strong>the</strong> Kazakh government has to build new <strong>in</strong>frastructure to mitigate its<br />

political <strong>and</strong> economic dependence on Russia <strong>and</strong> ensure stable revenues from raw material<br />

exports. Second, <strong>the</strong> manufactur<strong>in</strong>g <strong>and</strong> services sectors rema<strong>in</strong> underdeveloped. <strong>The</strong>refore,<br />

Kazakhstan has to diversify its economic structure to offer more high-salary job opportunities<br />

to its citizens, which is key to <strong>in</strong>creas<strong>in</strong>g liv<strong>in</strong>g st<strong>and</strong>ards. Third, <strong>the</strong> current high commodity<br />

prices <strong>and</strong> energy <strong>in</strong>security are a boost for green transition. Depend<strong>in</strong>g on how fast Western<br />

countries achieve considerable reductions <strong>in</strong> energy consumption, Kazakh revenues from crude<br />

exports could decl<strong>in</strong>e <strong>in</strong> <strong>the</strong> mid-term perspective. Be<strong>in</strong>g also a major uranium supplier, <strong>the</strong><br />

country could compensate some of <strong>the</strong>se losses if nuclear energy is to become a major element<br />

of <strong>the</strong> “green” transition. However, <strong>the</strong> green<strong>in</strong>g <strong>and</strong> diversification of <strong>the</strong> Kazakh economy are<br />

additional challenges to be addressed by <strong>the</strong> Kazakh government.<br />

A third risk that could fur<strong>the</strong>r fuel public anger are ris<strong>in</strong>g prices, especially for food, <strong>and</strong> <strong>the</strong><br />

current <strong>in</strong>flation rate. Follow<strong>in</strong>g hyper<strong>in</strong>flation <strong>in</strong> <strong>the</strong> early 1990s, Kazakhstan managed to br<strong>in</strong>g<br />

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Internal <strong>and</strong> External <strong>Political</strong> Contestation <strong>in</strong> Kazakhstan<br />

down annual consumer price <strong>in</strong>creases to levels below 20 percent. <strong>The</strong> <strong>in</strong>flation rate, however,<br />

has been ra<strong>the</strong>r volatile over <strong>the</strong> past 20 years, with peaks <strong>in</strong> 2008 (17.1 percent) <strong>and</strong> 2016 (14.5<br />

percent) (<strong>The</strong> World Bank Data 2022). Kazakhstan already faced a surge <strong>in</strong> <strong>in</strong>flation <strong>in</strong> 2021 as<br />

many consumer products were imported <strong>and</strong> supply-cha<strong>in</strong> disruptions caused a sharp <strong>in</strong>crease<br />

<strong>in</strong> transportation costs (World Bank Group 2022: 14). Increas<strong>in</strong>g energy prices put <strong>in</strong>flation<br />

under additional pressure. As <strong>the</strong> <strong>in</strong>itial trigger for <strong>the</strong> protests <strong>in</strong> January 2022 shows, this is of<br />

major concern to citizens. With regard to <strong>the</strong> upcom<strong>in</strong>g heat<strong>in</strong>g season, <strong>the</strong> Kazakh government<br />

has already banned coal exports by road transportation to prevent speculation <strong>and</strong> fur<strong>the</strong>r price<br />

<strong>in</strong>creases.<br />

In addition to grow<strong>in</strong>g energy prices, sharply ris<strong>in</strong>g food prices have exacerbated <strong>in</strong>flation.<br />

S<strong>in</strong>ce March 2022, food <strong>in</strong>flation has jumped <strong>in</strong> Kazakhstan, reach<strong>in</strong>g 19.2 percent <strong>in</strong> June 2022<br />

( Trad<strong>in</strong>g Economics 2022). Droughts, animal diseases (Eurasianet 2022), global supply cha<strong>in</strong><br />

disruptions <strong>and</strong> Russia limit<strong>in</strong>g food exports have not only caused price <strong>in</strong>creases but also food<br />

shortages <strong>in</strong> Central Asia. As Kazakhstan is a major gra<strong>in</strong> exporter to <strong>the</strong> o<strong>the</strong>r Central Asian<br />

states, <strong>the</strong> effects on <strong>the</strong> country are not as severe as on <strong>the</strong> entire region, where food security<br />

has become a major issue (RadioFreeEurope/RadioLiberty 2022a), but <strong>the</strong> government has also<br />

reacted with export restrictions to secure food supply. If this development cont<strong>in</strong>ues throughout<br />

<strong>the</strong> year, <strong>and</strong> <strong>the</strong>re are no signs of a turnaround, <strong>in</strong>flation could become a major risk for system<br />

stability <strong>in</strong> Kazakhstan, putt<strong>in</strong>g <strong>the</strong> president <strong>and</strong> government under pressure to adopt emergency<br />

measures.<br />

An additional, non-economic factor underm<strong>in</strong><strong>in</strong>g <strong>the</strong> Kazakh president’s ability to implement<br />

fundamental socio-economic reforms is <strong>the</strong> power distribution with<strong>in</strong> <strong>the</strong> regime. In our paper,<br />

we focus on <strong>the</strong> economic <strong>and</strong> foreign policy dimensions of <strong>the</strong> Kazakh “Bloody January”, but<br />

<strong>the</strong> violent protests also have a power dimension. One widespread <strong>in</strong>terpretation of why peaceful<br />

protests turned <strong>in</strong>to violent riots is that <strong>the</strong>y were hijacked by groups fight<strong>in</strong>g for power <strong>in</strong><br />

<strong>the</strong> Kazakh regime (Cornell 2022: 5). As a career diplomat, Tokayev does not have his own<br />

power basis with<strong>in</strong> <strong>the</strong> Kazakh regime, which made him an excellent choice as a new president<br />

who cannot dare to challenge <strong>the</strong> power of <strong>the</strong> established elite. Accord<strong>in</strong>gly, former President<br />

Nazarbayev has rema<strong>in</strong>ed <strong>the</strong> ém<strong>in</strong>ence grise of Kazakhstan. As <strong>the</strong> political <strong>and</strong> economic<br />

reforms pursued by Tokayev s<strong>in</strong>ce 2019 (Cornell/Starr/Barro 2021) began to underm<strong>in</strong>e <strong>the</strong><br />

power of <strong>the</strong> established elite, <strong>in</strong> <strong>the</strong> eyes of some commentators <strong>the</strong> protests were used as a<br />

pretext to challenge his rule (Cornell 2022: 5). <strong>The</strong> fact that Tokayev called for CSTO troops to<br />

<strong>in</strong>tervene <strong>in</strong> Kazakhstan is read as a sign that he did not trust his own security services. 6<br />

In <strong>the</strong> end, <strong>the</strong> violent riots offered Tokayev <strong>the</strong> opportunity to embark on “de-Nazarbayevication”<br />

(Kudaibergenova/Laruelle 2022: 13). He took over <strong>the</strong> chairmanship of <strong>the</strong> National Security<br />

Council from Nazarbayev, removed a number of Nazarbayev confidants from public offices <strong>and</strong><br />

dismissed <strong>the</strong> government, which had been <strong>in</strong> office s<strong>in</strong>ce <strong>the</strong> rule of his predecessor. Officially,<br />

6 For details on <strong>the</strong> foreign policy dimension of <strong>the</strong> January events, see <strong>the</strong> next section.<br />

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all this was done with <strong>the</strong> back<strong>in</strong>g of Nazarbayev, who called on <strong>the</strong> Kazakh citizens to support<br />

Tokayev (Eastblog 2022). All <strong>in</strong> all, Tokayev proceeded with <strong>the</strong> “de-Nazarbayevication” very<br />

cautiously. <strong>The</strong> new government is a very good example that <strong>the</strong> changes do not mark a total<br />

breakup with <strong>the</strong> old elites: eleven of <strong>the</strong> new members of government already served <strong>in</strong> <strong>the</strong><br />

previous one. This can be <strong>in</strong>terpreted as a clear signal that beneficiaries of <strong>the</strong> old system do<br />

not need to worry much about <strong>the</strong>ir privileges. As Tokayev’s power is still potentially disputed<br />

by rivals <strong>in</strong> <strong>the</strong> regime, <strong>the</strong> established elite cont<strong>in</strong>ues to set clear limits on how far reforms can<br />

go without becom<strong>in</strong>g too pa<strong>in</strong>ful for <strong>the</strong> oligarchs. On one h<strong>and</strong>, <strong>the</strong> elite rema<strong>in</strong>s a factor limit<strong>in</strong>g<br />

Tokayev’s ability to pursue reforms <strong>and</strong> fulfil <strong>the</strong> protesters’ dem<strong>and</strong>s. This could result <strong>in</strong><br />

new pressure for reforms from <strong>the</strong> streets. On <strong>the</strong> o<strong>the</strong>r h<strong>and</strong>, too far-reach<strong>in</strong>g reforms to fulfil<br />

citizens’ dem<strong>and</strong>s can also be a potential risks to system stability as <strong>the</strong> possibility of ano<strong>the</strong>r<br />

coup d’état <strong>in</strong>itiated by rivall<strong>in</strong>g groups <strong>in</strong> <strong>the</strong> regime cannot be ruled out.<br />

While <strong>the</strong> Kazakh president’s early reactions to <strong>the</strong> protests <strong>in</strong> January 2022 <strong>in</strong>cluded <strong>the</strong> promise<br />

of socio-economic reforms, his reform agenda has changed s<strong>in</strong>ce 24 February 2022. On<br />

16 March 2022, Tokayev addressed <strong>the</strong> Kazakh people with an early state of <strong>the</strong> nation address,<br />

detail<strong>in</strong>g his reform agenda <strong>in</strong> ten <strong>the</strong>matic clusters. N<strong>in</strong>e of <strong>the</strong> ten clusters dealt with <strong>the</strong><br />

political system of Kazakhstan, cover<strong>in</strong>g <strong>the</strong> powers of <strong>the</strong> president <strong>and</strong> parliament, a reform<br />

of <strong>the</strong> electoral system, <strong>the</strong> electoral process <strong>and</strong> <strong>the</strong> law on political parties, human rights, <strong>the</strong><br />

adm<strong>in</strong>istrative system <strong>and</strong> decentralisation (President of <strong>the</strong> Republic of Kazakhstan 2022b).<br />

Only <strong>the</strong> tenth <strong>the</strong>matic cluster comprised anti-crisis measures to mediate <strong>the</strong> economic fallout<br />

from Western sanctions on Russia. <strong>The</strong> first emergency measures were controls on capital<br />

flows as <strong>the</strong> tenge was closely follow<strong>in</strong>g <strong>the</strong> Russian ruble <strong>in</strong> its decl<strong>in</strong>e. About six weeks after<br />

<strong>the</strong> Russian <strong>in</strong>vasion, <strong>the</strong> exchange rate of ruble <strong>and</strong> tenge had stabilised. A second priority was<br />

<strong>the</strong> stabilisation of food prices by boost<strong>in</strong>g national agricultural production, a challenge which,<br />

as outl<strong>in</strong>ed before, could be crucial for ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g stability <strong>in</strong> Kazakhstan. Additional economic<br />

measures rema<strong>in</strong>ed vague, but <strong>the</strong> president did announce his <strong>in</strong>tention to <strong>in</strong>itiate a structural<br />

reform package of de-bureaucratisation <strong>in</strong> <strong>the</strong> economic <strong>and</strong> public adm<strong>in</strong>istration to <strong>in</strong>crease<br />

<strong>the</strong> efficiency of crisis responses (President of <strong>the</strong> Republic of Kazakhstan 2022b).<br />

This economic reform priority is completely different from what citizens protest<strong>in</strong>g <strong>in</strong> January<br />

2022 had <strong>in</strong> m<strong>in</strong>d when call<strong>in</strong>g for socio-economic reforms. <strong>The</strong> proposed measures consider<br />

citizens’ concerns; <strong>the</strong>y do reflect that <strong>the</strong> government has understood how crucial socio-economic<br />

development is for ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g its legitimacy. However, <strong>the</strong> proposed agenda ma<strong>in</strong>ly<br />

moderates expectations. <strong>The</strong> measures are realistic <strong>in</strong> that, given <strong>the</strong> previously described<br />

geopolitical <strong>and</strong> economic circumstances, stabilis<strong>in</strong>g <strong>the</strong> economy <strong>and</strong> prevent<strong>in</strong>g any fur<strong>the</strong>r<br />

deterioration of citizens’ economic situation are <strong>the</strong> only achievable objectives <strong>in</strong> <strong>the</strong> short term.<br />

As <strong>the</strong> Kazakh president is aware that bus<strong>in</strong>ess as usual <strong>in</strong> domestic politics is a fundamental<br />

threat to his <strong>and</strong> <strong>the</strong> system’s legitimacy, he focuses on political reforms. Regardless of geopolitical<br />

circumstances, he can follow up on his previous reform agenda address<strong>in</strong>g <strong>the</strong> Kazakh<br />

political system. Based on additional legitimacy generated by <strong>the</strong> protests <strong>in</strong> January, he can<br />

speed up <strong>the</strong> process. Thus, <strong>the</strong> reforms proposed <strong>in</strong> <strong>the</strong> state of <strong>the</strong> nation address <strong>and</strong> those<br />

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Internal <strong>and</strong> External <strong>Political</strong> Contestation <strong>in</strong> Kazakhstan<br />

already decided <strong>in</strong> <strong>the</strong> referendum of 5 June 2020 address all levels of <strong>the</strong> Kazakh political<br />

system, whereas previous reforms ma<strong>in</strong>ly focused on <strong>the</strong> local level (Cornell/Barro 2022). Even<br />

though <strong>the</strong> reforms are more far-reach<strong>in</strong>g than before, <strong>the</strong>y are not a path to liberal democracy<br />

<strong>in</strong> Kazakhstan. As much as every step should be welcomed, <strong>the</strong> system as a whole will rema<strong>in</strong><br />

under <strong>the</strong> control of <strong>the</strong> rul<strong>in</strong>g elite. <strong>The</strong>refore, Tokayev’s reform agenda very unlikely is of<br />

concern to <strong>the</strong> Russian government.<br />

4 Kazakhstan’s Foreign Policy – Ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g <strong>the</strong> Balance Is Becom<strong>in</strong>g Difficult<br />

Kazakhstan’s foreign policy is characterised by a multi-vector foreign policy concept marked <strong>in</strong><br />

particular by former president Nazarbayev to f<strong>in</strong>d a balance <strong>in</strong> external relations with regard to<br />

<strong>the</strong> country’s geopolitical position <strong>and</strong> its young <strong>in</strong>dependence as a post-Soviet state ( Ambrosio/<br />

Lange 2014: 543). <strong>The</strong> concept aims to seek strategic <strong>in</strong>dependence while benefit<strong>in</strong>g from <strong>the</strong><br />

advantages of cooperat<strong>in</strong>g with larger <strong>and</strong> more powerful states 7 . As Ambrosio <strong>and</strong> Lange state<br />

<strong>in</strong> <strong>the</strong>ir analysis of Nazarbayev’s presidential addresses from 1997 to 2014, <strong>the</strong> former Kazakh<br />

president refers to this concept <strong>in</strong> almost all his speeches dur<strong>in</strong>g <strong>the</strong> <strong>in</strong>vestigation period. Key<br />

po<strong>in</strong>ts of <strong>the</strong> strategy are to manifest “a pragmatic, non-confrontational foreign policy which<br />

aims to balance positive relations with <strong>the</strong> major powers (Russia, Ch<strong>in</strong>a, <strong>the</strong> United States), as<br />

well as to ensure an active policy <strong>in</strong> <strong>the</strong> regions surround<strong>in</strong>g Kazakhstan (Eurasia, Europe, Asia,<br />

<strong>and</strong> <strong>the</strong> Islamic world).” (Ambrosio/Lange 2014: 549). <strong>The</strong> structure of markets for Kazakh gas<br />

<strong>and</strong> oil exports are a clear example of how <strong>the</strong> country seeks a balance <strong>in</strong> its external relations.<br />

As Ipek states, Kazakhstan follows a multi-vector foreign policy especially due to <strong>the</strong> geopolitical<br />

challenges of export<strong>in</strong>g goods from a l<strong>and</strong>locked country. <strong>The</strong> “geopolitical imperatives<br />

force <strong>the</strong> country to keep good relations with Russia <strong>and</strong> Ch<strong>in</strong>a as well as with <strong>the</strong> United States<br />

<strong>and</strong> <strong>the</strong> European Union, as counterbalanc<strong>in</strong>g partners” (İpek 2007: 1180). This results <strong>in</strong> a pragmatic<br />

approach to foreign policy.<br />

Although <strong>the</strong> <strong>EU</strong> aimed to <strong>in</strong>tensify its relations with <strong>the</strong> Central Asian region by adopt<strong>in</strong>g <strong>the</strong> first<br />

Central Asia strategy <strong>in</strong> 2007 (Böttger/Braun/Plottka 2019), <strong>the</strong> Union was regarded only as a<br />

junior partner for Kazakhstan. <strong>The</strong>refore, with<strong>in</strong> <strong>the</strong> framework of <strong>the</strong> multi-vector foreign policy<br />

ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g good relations with <strong>the</strong> <strong>EU</strong> has always been important for Kazakhstan, but only on<br />

a regular basis – not because <strong>the</strong> <strong>EU</strong> is an important partner beyond trade <strong>in</strong> raw materials, but<br />

to counterbalance Ch<strong>in</strong>ese <strong>and</strong> Russian <strong>in</strong>fluence. Never<strong>the</strong>less, with regard to current developments<br />

<strong>the</strong> question arises whe<strong>the</strong>r <strong>the</strong> <strong>EU</strong> could become a more important partner for Kazakh<br />

foreign policy. 8 To answer this question, a more detailed look must be taken at Kazakhstan’s<br />

foreign relations with Russia.<br />

7 <strong>The</strong> counterexample is Turkmenistan, which puts neutrality first <strong>in</strong> its foreign policy at <strong>the</strong> expense of refra<strong>in</strong><strong>in</strong>g<br />

from <strong>in</strong>ternational cooperation.<br />

8 In general, relations with <strong>the</strong> US could serve <strong>the</strong> same function. However, dur<strong>in</strong>g <strong>the</strong> presidency of Donald Trump<br />

US <strong>in</strong>terest <strong>in</strong> <strong>the</strong> region vanished for some time, mak<strong>in</strong>g <strong>the</strong> US a less stable partner with<strong>in</strong> a multi-vector foreign<br />

policy approach.<br />

Wirtschaft und <strong>Management</strong> · B<strong>and</strong> 33 · März 2023<br />

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S<strong>in</strong>ce <strong>the</strong> Russian annexation of Crimea, it has been discussed whe<strong>the</strong>r Russia is a potential<br />

threat to Kazakh territorial <strong>in</strong>tegrity. Both countries have more than 7,000 kilometres of l<strong>and</strong><br />

border, <strong>and</strong> <strong>the</strong> fact that a quarter of Kazakh citizens are ethnic Russians (mostly liv<strong>in</strong>g <strong>in</strong> <strong>the</strong><br />

country’s north) could be used as a pretext for Russian claims to Kazakh territory. <strong>The</strong> Russian<br />

government has never tried to defuse such fears, but regularly stokes <strong>the</strong>m. In 2014, Russian<br />

president Vladimir Put<strong>in</strong> observed that his Kazakh counterpart had “created a state <strong>in</strong> a territory<br />

that had never had a state before. <strong>The</strong> Kazakhs never had any statehood. He created it.” (<strong>The</strong><br />

Diplomat 2022). Bear<strong>in</strong>g <strong>in</strong> m<strong>in</strong>d <strong>the</strong> allegations of Russian propag<strong>and</strong>a aga<strong>in</strong>st Ukra<strong>in</strong>e, Put<strong>in</strong>’s<br />

words are quite ambivalent. <strong>The</strong> latest <strong>in</strong>cited dates back to August 2022, when former Russian<br />

president Dmitry Medvedev called Kazakhstan an “artificial state” <strong>in</strong> a social media post.<br />

“In this century Kazakhstani authorities implemented resettlement policies of various ethnic<br />

groups <strong>in</strong>side <strong>the</strong> republic which can be qualified as genocide of Russians. And we do not <strong>in</strong>tend<br />

to turn a bl<strong>in</strong>d eye to this. <strong>The</strong>re will be no order until <strong>the</strong> Russians get <strong>the</strong>re” (<strong>The</strong> Diplomat<br />

2022). 9 Consider<strong>in</strong>g that Kazakhstan is not a major military power but one of <strong>the</strong> largest uranium<br />

suppliers <strong>and</strong> has been nuclear-free s<strong>in</strong>ce 1996 (Deutschl<strong>and</strong>funk Kultur 2021), it becomes clear<br />

how dependent <strong>the</strong> country is on Russian goodwill not to challenge its territorial <strong>in</strong>tegrity.<br />

Unlike Georgia <strong>and</strong> Ukra<strong>in</strong>e, which have both moved closer to <strong>the</strong> West <strong>in</strong> <strong>the</strong> past decade, <strong>the</strong>re<br />

is little probability that Kazakhstan would turn to <strong>the</strong> <strong>EU</strong> <strong>and</strong> away from <strong>the</strong> E<strong>EU</strong>. As <strong>the</strong> Russian<br />

government cont<strong>in</strong>ues to prove, however, that speeches about a new Russian empire are no<br />

cheap talk (see <strong>the</strong> annexation of Crimea <strong>and</strong> <strong>the</strong> proxy war <strong>in</strong> Ukra<strong>in</strong>e s<strong>in</strong>ce 2014, <strong>and</strong> <strong>the</strong> war<br />

aga<strong>in</strong>st Ukra<strong>in</strong>e s<strong>in</strong>ce 24 February 2022), Kazakhstan faces a foreign policy dilemma. On one<br />

h<strong>and</strong>, positive relations with Russia are essential for Kazakhstan’s security. Open confrontation<br />

between <strong>the</strong> two countries would entail severe political risk for <strong>the</strong> Kazakh government. On <strong>the</strong><br />

o<strong>the</strong>r h<strong>and</strong>, too much dependence on Russia could also become a political risk as <strong>the</strong> example<br />

of Belarus shows.<br />

Aga<strong>in</strong>st this background, <strong>the</strong> foreign policy dimension of <strong>the</strong> developments <strong>in</strong> January 2022 is<br />

of particular <strong>in</strong>terest. President Tokayev described <strong>the</strong> demonstrators as terrorist gangs tra<strong>in</strong>ed<br />

abroad <strong>and</strong> called for temporary deployment of a CSTO peacekeep<strong>in</strong>g force. This reference<br />

to foreign <strong>in</strong>fluence was a necessary precondition for <strong>the</strong> deployment of CSTO troops, as <strong>the</strong><br />

organisation does not <strong>in</strong>terfere <strong>in</strong> <strong>in</strong>ternal affairs of its member states. Previous calls by CSTO<br />

member states for deployment of troops were rejected on this basis. This time, Armenian prime<br />

m<strong>in</strong>ister Nikol Pash<strong>in</strong>yan, as serv<strong>in</strong>g chairperson of <strong>the</strong> CSTO, immediately agreed to <strong>the</strong> deployment.<br />

Russian paratroopers arrived <strong>the</strong> next day. <strong>The</strong> CSTO peacekeep<strong>in</strong>g force also <strong>in</strong>cluded soldiers<br />

from Armenia, Belarus <strong>and</strong> Tajikistan. While violent clashes cont<strong>in</strong>ued <strong>and</strong> Kazakh security forces<br />

were allowed to fire without warn<strong>in</strong>g from 7 January 2022, it is important to note that CSTO<br />

troops from abroad were not <strong>in</strong>volved <strong>in</strong> <strong>the</strong> clashes but protected official build<strong>in</strong>gs. <strong>The</strong>refore, it<br />

9 <strong>The</strong> post was deleted later on <strong>and</strong> Medvedev claimed his account had been hacked.<br />

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Internal <strong>and</strong> External <strong>Political</strong> Contestation <strong>in</strong> Kazakhstan<br />

is very likely that <strong>the</strong> president’s call for CSTO troops was not a request for help from Russia, but<br />

a domestic political signal. <strong>The</strong>re were reports of Kazakh security forces jo<strong>in</strong><strong>in</strong>g <strong>the</strong> demonstrators<br />

<strong>and</strong> Tokayev could not be sure of <strong>the</strong>ir loyalty. In both directions, <strong>the</strong> CSTO troops were a<br />

clear signal that <strong>the</strong> president had a plan B just <strong>in</strong> case. He could use <strong>the</strong> foreign troops to secure<br />

his position of power <strong>in</strong> domestic politics. Apparently, <strong>the</strong> signal was sufficient to solve <strong>the</strong> situation<br />

to his advantage.<br />

For Russia, <strong>the</strong> deployment was beneficial as it refuted earlier criticism that <strong>the</strong> CSTO existed<br />

only on paper. S<strong>in</strong>ce <strong>the</strong> hasty withdrawal of Western troops from Afghanistan, Central Asia has<br />

been confronted with a new security problem. <strong>The</strong> countries <strong>in</strong> <strong>the</strong> region – especially Tajikistan<br />

– are expect<strong>in</strong>g Russian support <strong>in</strong> security operations, such as <strong>the</strong> anti-terrorism exercises<br />

with<strong>in</strong> <strong>the</strong> framework of <strong>the</strong> CSTO at <strong>the</strong> end of 2021. In <strong>the</strong> long term, however, Russia can<br />

only provide such support through CSTO if its partners trust <strong>the</strong> organisation. <strong>The</strong> mission <strong>in</strong><br />

Kazakhstan was a step <strong>in</strong> this direction.<br />

In foreign policy, Tokayev will now have to balance Russian expectations, <strong>the</strong> <strong>in</strong>direct consequences<br />

of Western sanctions aga<strong>in</strong>st Russia, <strong>and</strong> <strong>the</strong> expectations of his citizens. In addition,<br />

regard<strong>in</strong>g <strong>the</strong> domestic <strong>in</strong>fluence on foreign policy, ethnic aspects with<strong>in</strong> Kazakh society also<br />

need to be considered. On <strong>the</strong> Russian border, ethnic Russians make up 60 to 70 percent of <strong>the</strong><br />

population – <strong>in</strong> <strong>the</strong> entire country <strong>the</strong>y make up a quarter of Kazakhstan’s 16 million <strong>in</strong>habitants.<br />

Russians <strong>and</strong> Kazakhstanis liv<strong>in</strong>g <strong>in</strong> Kazakhstan differ <strong>in</strong> <strong>the</strong>ir op<strong>in</strong>ions on <strong>the</strong> war <strong>in</strong> Ukra<strong>in</strong>e: <strong>in</strong><br />

April 2022, a survey conducted by <strong>the</strong> Kyiv School of Economics found that “40% of <strong>the</strong> Russians<br />

<strong>in</strong> Kazakhstan th<strong>in</strong>k that Russia’s goal <strong>in</strong> Ukra<strong>in</strong>e is ‘to protect <strong>the</strong> Donbass people’”( Kyiv School<br />

of Economics 2022), while only “10% of Kazakhs hold this op<strong>in</strong>ion.” (Kyiv School of Economics<br />

2022). In addition, while many ethnic Kazakhs wonder whe<strong>the</strong>r <strong>the</strong> north of <strong>the</strong>ir country,<br />

very rich <strong>in</strong> oil, natural gas <strong>and</strong> uranium, will be next, almost all Russians <strong>in</strong> <strong>the</strong> country support<br />

Put<strong>in</strong>’s policy (Deutschl<strong>and</strong>funk 2014).<br />

<strong>The</strong> first foreign policy decisions were marked by restra<strong>in</strong>t. President Tokayev’s comments<br />

on <strong>the</strong> war <strong>in</strong> Ukra<strong>in</strong>e on 1 March 2022 were representative of a multi-vector foreign policy:<br />

nei<strong>the</strong>r was <strong>the</strong> Russian attack directly condemned, nor was any explicit side taken for ei<strong>the</strong>r<br />

of <strong>the</strong> states. Instead, he emphasised “<strong>the</strong> critical need to ensure <strong>the</strong> security, sovereignty <strong>and</strong><br />

territorial <strong>in</strong>tegrity of Kazakhstan” (M<strong>in</strong>istry of Foreign Affairs of <strong>the</strong> Republic of Kazakhstan<br />

2022). He also offered Kazakhstan as a mediator by stat<strong>in</strong>g: “<strong>The</strong> geopolitical situation has<br />

escalated <strong>in</strong> an unprecedented way, <strong>and</strong> it is now time to talk about irreversibility of this trend,<br />

to much regret. <strong>The</strong>refore, we call on both states to f<strong>in</strong>d common ground at a negotiat<strong>in</strong>g table,<br />

to reach an agreement. <strong>The</strong>re is no o<strong>the</strong>r way. A bad peace is better than a good war. Without<br />

peace, <strong>the</strong>re will be no development.” (M<strong>in</strong>istry of Foreign Affairs of <strong>the</strong> Republic of Kazakhstan<br />

2022). One day later at <strong>the</strong> UN General Assembly, <strong>the</strong> Kazakh position lost its neutral stance.<br />

<strong>The</strong> country’s abstention <strong>in</strong> <strong>the</strong> UN General Assembly is considered a clear sign aga<strong>in</strong>st Russia’s<br />

war. This move was followed by <strong>the</strong> non-recognition of <strong>the</strong> Luhansk <strong>and</strong> Donetsk republics <strong>in</strong><br />

early April 2022, support for Ukra<strong>in</strong>e with civilian aid <strong>and</strong> <strong>the</strong> cancellation of <strong>the</strong> military parade<br />

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Florence Ertel / Julian Plottka<br />

to commemorate <strong>the</strong> victory over Nazi Germany (RadioFreeEurope/RadioLiberty 2022b). On a<br />

symbolic level, Kazakh foreign policy is mov<strong>in</strong>g as far away from Russia as possible without<br />

publicly condemn<strong>in</strong>g <strong>the</strong> Russian war aga<strong>in</strong>st Ukra<strong>in</strong>e. This course earned Tokayev <strong>the</strong> support<br />

of <strong>the</strong> Kazakh people <strong>and</strong> has streng<strong>the</strong>ned his position (Carnegie Endowment for International<br />

Peace 2022).<br />

In o<strong>the</strong>r areas, pursu<strong>in</strong>g multi-vector foreign policy is even more difficult. Tokayev has also<br />

emphasised Kazakhstan’s economic <strong>in</strong>tegrity with regard to <strong>the</strong> sanctions aga<strong>in</strong>st Russia by<br />

tak<strong>in</strong>g measures to “overcome difficulties <strong>and</strong> challenges toge<strong>the</strong>r” (M<strong>in</strong>istry of Foreign Affairs<br />

of <strong>the</strong> Republic of Kazakhstan 2022), to ensure <strong>the</strong> function<strong>in</strong>g of <strong>the</strong> economy <strong>in</strong> <strong>the</strong> crisis.<br />

Fur<strong>the</strong>rmore, he states that <strong>the</strong> result<strong>in</strong>g challenges should nei<strong>the</strong>r be underestimated nor<br />

exaggerated. This can be seen as a clear signal to both Russia <strong>and</strong> <strong>the</strong> sanction<strong>in</strong>g rest of <strong>the</strong><br />

world – especially <strong>the</strong> European Union. <strong>The</strong> sanctions are nei<strong>the</strong>r condemned nor explicitly<br />

welcomed. <strong>The</strong>se developments cannot meet Russian expectations, as a member state of<br />

<strong>the</strong> E<strong>EU</strong> with close trade relations with Ch<strong>in</strong>a <strong>and</strong> <strong>the</strong> West would be <strong>the</strong> perfect backdoor to<br />

circumvent<strong>in</strong>g Western sanctions. However, <strong>the</strong> Kazakh government has sent clear signals to<br />

<strong>the</strong> <strong>EU</strong> that it is will<strong>in</strong>g to comply with Western sanctions (Cornell/Barro 2022: 17). On ano<strong>the</strong>r<br />

level, Kazakhstan is also approach<strong>in</strong>g <strong>the</strong> <strong>EU</strong>, signall<strong>in</strong>g clear <strong>in</strong>terest <strong>in</strong> deepen<strong>in</strong>g cooperation.<br />

<strong>The</strong> question how to “fur<strong>the</strong>r streng<strong>the</strong>n bilateral relations” between <strong>the</strong> <strong>EU</strong> <strong>and</strong> Kazakhstan was<br />

discussed at <strong>the</strong> <strong>EU</strong>-Kazakhstan Cooperation Council <strong>in</strong> June 2022, especially with regard to<br />

economic relations <strong>and</strong> alternative trade routes to connect Europe <strong>and</strong> Asia. (European Council<br />

2022)<br />

That this foreign policy course creates tension with Russia has been shown by <strong>the</strong> three-time<br />

shutdown of <strong>the</strong> ma<strong>in</strong> export route for Kazakh oil, which crosses Russia. <strong>The</strong> term<strong>in</strong>al to load<br />

Kazakh oil on ships <strong>in</strong> <strong>the</strong> Black Sea has been closed twice s<strong>in</strong>ce 24 February 2022. In March<br />

damage follow<strong>in</strong>g a storm <strong>and</strong> <strong>in</strong> June <strong>the</strong> search for World <strong>War</strong> II underwater m<strong>in</strong>es were cited<br />

as reasons to justify shutt<strong>in</strong>g down <strong>the</strong> export facilities. On 5 July 2022, a local Russian court<br />

ordered <strong>the</strong> third-time closure of <strong>the</strong> pipel<strong>in</strong>e of <strong>the</strong> “Caspian Pipel<strong>in</strong>e Consortium” due to noncompliance<br />

with environmental protection regulations. Incidentally, <strong>the</strong> decision was taken a day<br />

after Kazakh president Tokayev discussed additional exports to Europe with <strong>the</strong> president of <strong>the</strong><br />

European Council, Charles Michel (Deutsche Welle 2022a). <strong>The</strong> Kazakh government reacted by<br />

discuss<strong>in</strong>g alternative options to export oil <strong>and</strong> gas through Azerbaijan (Wiener Zeitung 2022)<br />

<strong>and</strong> <strong>the</strong> court soon ordered a reopen<strong>in</strong>g of <strong>the</strong> pipel<strong>in</strong>e. Recent speculation about a trade war<br />

between Russia <strong>and</strong> Kazakhstan is clearly exaggerated (Deutsche Welle 2022b). <strong>The</strong> Russian<br />

government seems to show signs, however, that Kazakh foreign policy is slowly approach<strong>in</strong>g red<br />

l<strong>in</strong>es that Russia is not will<strong>in</strong>g to see crossed.<br />

While Kazakhstan’s current foreign policy course clearly eases <strong>in</strong>ternal contestation over Kazakh<br />

relations with Russia <strong>and</strong> w<strong>in</strong>s support for <strong>the</strong> president, pursu<strong>in</strong>g a multi-vector foreign policy<br />

is becom<strong>in</strong>g <strong>in</strong>creas<strong>in</strong>gly difficult. Contestation between Kazakhstan <strong>and</strong> Russia is ris<strong>in</strong>g. As<br />

<strong>the</strong> Russian government starts to th<strong>in</strong>k <strong>in</strong> terms of friends that are with Russia, <strong>and</strong> foes that<br />

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Internal <strong>and</strong> External <strong>Political</strong> Contestation <strong>in</strong> Kazakhstan<br />

are with <strong>the</strong> West, it rema<strong>in</strong>s unclear how long Kazakhstan will be able to pursue its multi-vector<br />

foreign policy, which is based on good neighbourly relations with all partners. <strong>The</strong>refore, Russian<br />

foreign policy is <strong>the</strong> major political risk to Kazakh foreign policy. Speculat<strong>in</strong>g about how far<br />

Russia might be ready to go on its current course is difficult as <strong>the</strong> policy is no longer based on<br />

rational calculation.<br />

5 Conclusion – Internal Stability <strong>and</strong> External <strong>Political</strong> <strong>Risks</strong><br />

Based on our assessment of <strong>the</strong> political risks aris<strong>in</strong>g from <strong>the</strong> protests of January 2022, we<br />

conclude that Kazakhstan will most likely rema<strong>in</strong> <strong>the</strong> most stable country <strong>in</strong> Central Asia. With<br />

regard to <strong>the</strong> economic situation <strong>and</strong> Kazakh foreign policy, external factors are probable causes<br />

of <strong>in</strong>stability, while under difficult circumstances <strong>the</strong> government can be expected to take steps<br />

to stabilise <strong>the</strong> situation.<br />

We have found that <strong>the</strong> peaceful protests were ma<strong>in</strong>ly driven by socio-economic concerns of<br />

impoverished parts of Kazakh society – ma<strong>in</strong>ly <strong>in</strong> rural areas –, who dem<strong>and</strong>ed a fair share<br />

of <strong>the</strong> country’s wealth. In his <strong>in</strong>itial response, <strong>the</strong> Kazakh president acknowledged <strong>the</strong>se<br />

dem<strong>and</strong>s <strong>and</strong> promised to implement socio-economic reforms with a focus on fight<strong>in</strong>g corruption.<br />

Follow<strong>in</strong>g <strong>the</strong> Russian <strong>in</strong>vasion <strong>in</strong> Ukra<strong>in</strong>e on 24 February 2022, priorities changed <strong>and</strong> <strong>the</strong><br />

government started to moderate expectations. With a focus on food security <strong>and</strong> prevent<strong>in</strong>g any<br />

fur<strong>the</strong>r losses <strong>in</strong> purchas<strong>in</strong>g power, <strong>the</strong> economic reforms turned out to be a crisis management<br />

package.<br />

This agenda seems realistic as economic prospects are bleak due to Kazakhstan’s close ties<br />

with <strong>the</strong> Russian economy, which is negatively affected by Western sanctions, <strong>and</strong> a potential<br />

new wave of COVID-19 <strong>in</strong>fections <strong>in</strong> autumn 2022. High <strong>in</strong>flation <strong>and</strong> ris<strong>in</strong>g food prices are <strong>the</strong><br />

major political risk that could put <strong>the</strong> Kazakh government under additional public pressure. <strong>The</strong><br />

sharp <strong>in</strong>crease <strong>in</strong> global commodity prices, however, offers <strong>the</strong> Kazakh government <strong>the</strong> f<strong>in</strong>ancial<br />

leeway to fund crisis measures. Its large agricultural sector, which exports to o<strong>the</strong>r countries,<br />

provides <strong>the</strong> opportunity to ease price pressure by <strong>in</strong>creas<strong>in</strong>g production <strong>and</strong> limit<strong>in</strong>g exports.<br />

<strong>The</strong>refore, it seems very unlikely that <strong>the</strong> economic situation <strong>in</strong> Kazakhstan will put <strong>the</strong> government<br />

<strong>in</strong> danger <strong>in</strong> <strong>the</strong> near future even if it is unable to meet <strong>the</strong> socio-economic dem<strong>and</strong>s of <strong>the</strong><br />

citizens.<br />

Instead, <strong>the</strong> government has turned to political reforms of unprecedented scale <strong>in</strong> Kazakhstan.<br />

This trend, which dates back to <strong>the</strong> time before <strong>the</strong> “Bloody January”, is of particular <strong>in</strong>terest, as<br />

President Tokayev lacked sufficient support for his reform agenda until <strong>the</strong> end of 2021. Hav<strong>in</strong>g<br />

won <strong>the</strong> political power struggle entailed <strong>in</strong> <strong>the</strong> events of January 2022, he has new legitimacy to<br />

speed up reforms now. <strong>The</strong>se reforms are tak<strong>in</strong>g <strong>the</strong> opposite direction to democratic recession<br />

<strong>in</strong> Kyrgyzstan (currently establish<strong>in</strong>g a presidential autocracy) <strong>and</strong> tighten<strong>in</strong>g authoritarianism <strong>in</strong><br />

Tajikistan. <strong>The</strong> developments <strong>in</strong> Kazakhstan are rem<strong>in</strong>iscent of what Schieck has described as<br />

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new authoritarianism <strong>in</strong> Uzbekistan (Schieck 2017). He argues that authoritarian systems can<br />

no longer rely on repression alone but need additional sources of legitimacy. As under current<br />

circumstances <strong>the</strong> Kazakh president cannot generate additional legitimacy by <strong>in</strong>creas<strong>in</strong>g <strong>the</strong><br />

<strong>in</strong>come levels of <strong>the</strong> most disadvantaged citizens, he <strong>in</strong>creases political participation rights <strong>in</strong>stead.<br />

As <strong>the</strong>se reforms do not mark <strong>the</strong> beg<strong>in</strong>n<strong>in</strong>g of democratic transition <strong>in</strong> Kazakhstan, <strong>the</strong>y<br />

are highly unlikely to result <strong>in</strong> additional stability.<br />

Kazakh relations with Russia are a fur<strong>the</strong>r potential source of <strong>in</strong>stability. <strong>The</strong> deployment of<br />

CSTO troops <strong>in</strong> Kazakhstan <strong>and</strong> Russia’s nationalist rhetoric are fuell<strong>in</strong>g fears among ethnic<br />

Kazakhs that Russia could also <strong>in</strong>tervene <strong>in</strong> <strong>the</strong>ir country. Tokayev’s response of ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g an<br />

<strong>in</strong>dependent Kazakh position regard<strong>in</strong>g <strong>the</strong> war <strong>in</strong> Ukra<strong>in</strong>e has earned him support <strong>in</strong> Kazakhstan<br />

<strong>and</strong> helped dispel <strong>the</strong> reputation of hav<strong>in</strong>g h<strong>and</strong>ed <strong>the</strong> country over to Russia. However, pursu<strong>in</strong>g<br />

this traditional multi-vector foreign policy <strong>in</strong>creases tensions with Russia. Under <strong>the</strong>se circumstances,<br />

balanc<strong>in</strong>g external actors is becom<strong>in</strong>g <strong>in</strong>creas<strong>in</strong>gly difficult for <strong>the</strong> Kazakh government.<br />

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has s<strong>in</strong>ce deleted <strong>the</strong> social media post <strong>and</strong> blamed hackers. 05.08.2022. https://<strong>the</strong>diplomat.<br />

com/2022/08/former-russian-president-questions-kazakhstans-sovereignty/ (15.08.2022).<br />

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Economic Update, W<strong>in</strong>ter 2021/2022. https://openknowledge.worldbank.org/bitstream/<br />

h<strong>and</strong>le/10986/36772/W<strong>in</strong>ter-2021-2022.pdf?sequence=1&isAllowed=y (15.08.2022).<br />

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wid.world/country/kazakhstan/ (15.08.2022).<br />

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Florence Ertel / Julian Plottka<br />

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2015-2019. https://wits.worldbank.org/CountryProfile/en/Country/KAZ/StartYear/2015/<br />

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(15.08.2022).<br />

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<strong>in</strong> US$ Thous<strong>and</strong> 2015-2019. https://wits.worldbank.org/CountryProfile/en/Country/KAZ/<br />

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festnahmen (15.08.2022).<br />

36 Wirtschaft und <strong>Management</strong> · B<strong>and</strong> 33 · März 2023


Oxana Karnaukhova<br />

Central Asia between <strong>the</strong> European<br />

Union <strong>and</strong> Eurasian Economic Union:<br />

Sovereignty Underestimated<br />

Abstract<br />

Oxana Karnaukhova<br />

In <strong>the</strong> circumstances of <strong>the</strong> overgrow<strong>in</strong>g tensions with<strong>in</strong> <strong>the</strong> Eastern Neighborhood<br />

countries <strong>and</strong> <strong>the</strong> war on <strong>the</strong> Eastern flank of <strong>the</strong> European Union (<strong>EU</strong>), <strong>the</strong><br />

University of Passau<br />

focus on search<strong>in</strong>g for possible economic partnership is mov<strong>in</strong>g to Central Asia. After dozens<br />

of years of oblivion, <strong>the</strong> region found itself as <strong>the</strong> arena of competition among global leaders<br />

but also as a battleground for regional leaders – Kazakhstan <strong>and</strong> Uzbekistan. <strong>The</strong> paper starts<br />

with <strong>the</strong> assumption that a key reason for <strong>the</strong> poorly-designed external economic strategy lies <strong>in</strong><br />

neglect<strong>in</strong>g <strong>the</strong> place <strong>and</strong> role of economic sovereignty as a key driver of regional development.<br />

A comparative analysis of <strong>the</strong> regionalisms offered by <strong>the</strong> European Union (<strong>EU</strong>) <strong>and</strong> <strong>the</strong> Eurasian<br />

Economic Union (EA<strong>EU</strong>) demonstrates that leadership is most effectively exercised with a view<br />

to recognis<strong>in</strong>g equality <strong>in</strong> geo-economic positions <strong>and</strong> respect<strong>in</strong>g sovereign decision-mak<strong>in</strong>g<br />

rights. In this paper, it is argued that underestimat<strong>in</strong>g economic sovereignty of five develop<strong>in</strong>g<br />

economies <strong>in</strong> Eurasia for mult<strong>in</strong>ational corporations (MNCs) would be fatal <strong>in</strong> <strong>the</strong> context of<br />

hyper-competition between <strong>the</strong> European Union (<strong>EU</strong>), Eurasian Economic Union (EA<strong>EU</strong>) <strong>and</strong> Belt<br />

<strong>and</strong> Road Initiative (BRI) for <strong>the</strong> regional leadership on <strong>the</strong> emerg<strong>in</strong>g markets.<br />

Keywords: Economic Sovereignty, Regional Integration, Leadership, EA<strong>EU</strong>, <strong>EU</strong>, Central Asia,<br />

Susta<strong>in</strong>ability, MNCs, Russia, Ch<strong>in</strong>a<br />

1 Introduction<br />

<strong>The</strong> paper’s po<strong>in</strong>t of departure is <strong>the</strong> assumption that today we are witness<strong>in</strong>g a profound<br />

structural change <strong>in</strong> <strong>the</strong> post-Westphalia system of <strong>in</strong>ternational relations. This crisis has its<br />

roots <strong>in</strong> <strong>the</strong> geopolitical tensions of globalisation <strong>and</strong> reciprocal regionalisation <strong>and</strong> is driven<br />

by <strong>the</strong> need to reth<strong>in</strong>k <strong>the</strong> role of nation states <strong>in</strong> strategic geo-economic decision-mak<strong>in</strong>g. <strong>The</strong><br />

latter is shap<strong>in</strong>g <strong>the</strong> global economic agenda <strong>in</strong> terms of global <strong>and</strong> regional leadership through<br />

multilateral <strong>and</strong> bilateral relations. Mult<strong>in</strong>ational bus<strong>in</strong>ess plays a crucial role as a mediator <strong>the</strong>re.<br />

In <strong>the</strong> mid-20th century, <strong>the</strong> grow<strong>in</strong>g research <strong>in</strong>terest <strong>in</strong> <strong>the</strong> relationship between sovereignty<br />

<strong>and</strong> <strong>the</strong> movement of capital through <strong>in</strong>vestment was coupled with <strong>the</strong> notion of economic<br />

growth as a horizon for strategic decision-mak<strong>in</strong>g (Penrose 1959). <strong>The</strong> grow<strong>in</strong>g <strong>in</strong>fluence of<br />

<strong>in</strong>ternational organisations <strong>and</strong> mult<strong>in</strong>ational corporations led to question<strong>in</strong>g <strong>the</strong> reality of economic<br />

sovereignty by nation states (Vernon 1971). Fur<strong>the</strong>rmore, <strong>the</strong> discourse on <strong>the</strong> alignment<br />

of <strong>in</strong>tegration <strong>and</strong> sovereignty is currently be<strong>in</strong>g driven by a debate on <strong>the</strong> possibly dim<strong>in</strong>ish<strong>in</strong>g<br />

role of <strong>the</strong> nation state <strong>in</strong> <strong>the</strong> world – system <strong>and</strong> delegat<strong>in</strong>g some of its functions to supranational<br />

<strong>in</strong>stitutions with<strong>in</strong> <strong>the</strong> framework of <strong>in</strong>tegration alliances.<br />

Wirtschaft und <strong>Management</strong> · B<strong>and</strong> 33 · März 2023<br />

37


Oxana Karnaukhova<br />

<strong>The</strong>se discussions are even more relevant regard<strong>in</strong>g <strong>the</strong> so-called economic sovereignty of<br />

<strong>the</strong> state, <strong>the</strong> exercise of its regional or global leadership <strong>and</strong> <strong>the</strong> mechanisms of geopolitical<br />

<strong>and</strong> geo-economic decision-mak<strong>in</strong>g. As def<strong>in</strong>ed by Keohane <strong>and</strong> Nye (1977), ‘sovereignty is <strong>the</strong><br />

exclusive right to determ<strong>in</strong>e <strong>the</strong> framework of rules, regulations <strong>and</strong> policies with<strong>in</strong> a territory’.<br />

Accord<strong>in</strong>g to <strong>in</strong>stitutional <strong>and</strong> poststructuralist accounts, <strong>the</strong> state is seen as anchored <strong>in</strong> a wide<br />

cultural environment (Anderson 1986; Spruyt 1994). Sovereignty is viewed as a social status<br />

recognized that legitimates states to make decisions on behalf of community as supreme <strong>and</strong><br />

<strong>in</strong>dependent of outside authorities (Biersteker/Weber 1996; Jarvis/Paol<strong>in</strong>i 1995). <strong>The</strong>re is also<br />

external sovereignty, which is caught by <strong>the</strong> process of legitimation through recognition from<br />

outside. As Charles Doran (1989) noted, ‘<strong>in</strong>ternational political role reflects <strong>the</strong> set of foreign<br />

policy <strong>in</strong>terests that a state has actually achieved’. <strong>The</strong>se <strong>in</strong>terests are located <strong>in</strong>-between of<br />

national capabilities <strong>and</strong> aspirations, <strong>and</strong> <strong>the</strong> will<strong>in</strong>gness of o<strong>the</strong>r recognized members to allow<br />

<strong>the</strong> state to achieve its <strong>in</strong>terests. Thus, <strong>the</strong>se are <strong>in</strong>terstate relations with<strong>in</strong> <strong>the</strong> <strong>in</strong>ternational<br />

system.<br />

Autonomy of <strong>in</strong>ternal <strong>and</strong> external decision-mak<strong>in</strong>g <strong>and</strong> governance are tightly l<strong>in</strong>ked with<br />

power control <strong>and</strong> policy efficiency, <strong>and</strong> such policy efficacy as operational sovereignty is not<br />

constra<strong>in</strong>ed by external forces (Waltz 1969; Keohane 1993). Globalization questions <strong>the</strong> primary<br />

idea of governance based on geographical jurisdiction that is state sovereignty. Mult<strong>in</strong>ational<br />

enterprises play a central role <strong>in</strong> <strong>the</strong> process of such alienation as a result of digitalization <strong>and</strong><br />

of <strong>the</strong> rise of networked strategic alliances, <strong>in</strong>creas<strong>in</strong>g importance of transnational actors <strong>and</strong><br />

fur<strong>the</strong>r regionalisation.<br />

In this paper <strong>the</strong> particularities are questioned of <strong>the</strong> sovereignty exercise <strong>in</strong> develop<strong>in</strong>g economies<br />

<strong>and</strong> <strong>the</strong> extent to which economic sovereignty <strong>in</strong>terfaces with complex regionalisations,<br />

us<strong>in</strong>g Central Asia as an example. <strong>The</strong> case of Central Asia is chosen as experienc<strong>in</strong>g both<br />

pressures from <strong>the</strong> multi-vector <strong>in</strong>tegration projects of <strong>the</strong> <strong>EU</strong>, EA<strong>EU</strong> <strong>and</strong> One Belt One Road,<br />

<strong>and</strong> <strong>in</strong>ternal gravitational pressures. <strong>The</strong> widespread idea of <strong>the</strong> “sunset” of state sovereignty<br />

is <strong>in</strong>vestigated as a strategic decision-maker <strong>in</strong> <strong>the</strong> external economic policy, as well as <strong>the</strong><br />

possible implications for mult<strong>in</strong>ational corporations as a necessary l<strong>in</strong>k <strong>in</strong> <strong>the</strong> regional leadership<br />

strategy undertaken <strong>in</strong> emerg<strong>in</strong>g economies.<br />

First, <strong>the</strong> terms of economic sovereignty, leadership, <strong>and</strong> power are def<strong>in</strong>ed, which are frequently<br />

used <strong>in</strong> <strong>the</strong> vast majority of literature on regionalism transformations, nation-states position<strong>in</strong>g<br />

<strong>and</strong> contested <strong>in</strong>tegrations. Next, <strong>the</strong> chapter exam<strong>in</strong>es <strong>the</strong> geopolitical context <strong>in</strong> which<br />

Central Asian economies operate <strong>and</strong> <strong>the</strong> risks faced by companies. F<strong>in</strong>ally, <strong>the</strong> implication of<br />

<strong>the</strong> globalization <strong>and</strong> regionalization on Central Asia strategy <strong>and</strong> <strong>the</strong> possible impact of multivector<strong>in</strong>g<br />

on MNCs will be exam<strong>in</strong>ed.<br />

38 Wirtschaft und <strong>Management</strong> · B<strong>and</strong> 33 · März 2023


Central Asia between <strong>the</strong> European Union <strong>and</strong> Eurasian Economic Union: Sovereignty Underestimated<br />

2 Economic Sovereignty, Geopolitical Leadership <strong>and</strong> Regional Integration<br />

Start<strong>in</strong>g from Vernon (1971), <strong>the</strong> relations between state sovereignty <strong>and</strong> mult<strong>in</strong>ationalism<br />

reveal several issues, such as <strong>the</strong> reluctance of most governments to give up <strong>the</strong> advantages of<br />

mult<strong>in</strong>ationalism; global ambiguity of subsidiaries’ responses to challenges of a nation-state; an<br />

underst<strong>and</strong><strong>in</strong>g of mult<strong>in</strong>ationalism as an <strong>in</strong>strument of pressure <strong>and</strong> exercis<strong>in</strong>g <strong>in</strong>fluence of one<br />

state on ano<strong>the</strong>r (Kobr<strong>in</strong> 2009). In o<strong>the</strong>r words, <strong>the</strong> weaken<strong>in</strong>g of state control over <strong>the</strong> economy<br />

<strong>and</strong> economic actors is named as <strong>the</strong> most feasible challenges that national governments of<br />

emerg<strong>in</strong>g economies meet.<br />

What is <strong>in</strong>terest<strong>in</strong>g is that los<strong>in</strong>g state control <strong>and</strong> weaken<strong>in</strong>g economic sovereignty resulted<br />

from grow<strong>in</strong>g <strong>in</strong>terdependence <strong>and</strong> boom<strong>in</strong>g regionalization. Sovereignty decl<strong>in</strong>e is l<strong>in</strong>ked with<br />

<strong>the</strong> supranational <strong>in</strong>tegration boom, such as <strong>the</strong> <strong>EU</strong>, EA<strong>EU</strong> etc. (See: Krasner 2002; Savanovich<br />

2011). Technological development, transportation corridors, digitalization of f<strong>in</strong>ancial flows<br />

<strong>and</strong> bus<strong>in</strong>esses made <strong>in</strong>terdependence <strong>and</strong> globalization <strong>in</strong>evitable. In such circumstances<br />

multi nationalism became a vehicle for deepen<strong>in</strong>g <strong>the</strong>se processes. Moreover, <strong>the</strong> <strong>in</strong>creas<strong>in</strong>g<br />

l<strong>in</strong>kage between trade, official development assistance (ODA) <strong>and</strong> foreign direct <strong>in</strong>vestment<br />

certa<strong>in</strong>ly lowers <strong>the</strong> ability of <strong>in</strong>dividual governments to control economies <strong>in</strong>ternally <strong>and</strong> provide<br />

sovereign economic policy externally (Strange 1996). Asymmetry is observed also between <strong>the</strong><br />

political will<strong>in</strong>gness of governments to control <strong>and</strong> <strong>the</strong>ir grow<strong>in</strong>g dependence on bus<strong>in</strong>ess.<br />

At first glance, <strong>the</strong> explod<strong>in</strong>g growth of mult<strong>in</strong>ational enterprises by <strong>the</strong> 1980s has questioned<br />

some formal characteristics of sovereignty <strong>and</strong>, at <strong>the</strong> same time, has streng<strong>the</strong>ned core<br />

values of <strong>the</strong> post-Westphalian <strong>in</strong>ternational system, namely, <strong>the</strong> need for state approval<br />

<strong>and</strong> recognition for any economic <strong>and</strong> political activity before be<strong>in</strong>g granted. Globalization<br />

transcended economic, political, social, cultural etc. processes toward a new world order, which<br />

is emerg<strong>in</strong>g of <strong>the</strong> shadow of <strong>the</strong> nation state. Globalization <strong>in</strong>volves <strong>the</strong> deep <strong>in</strong>tegration <strong>and</strong><br />

<strong>in</strong>terconnectedness of network<strong>in</strong>g heterogeneous organizations.<br />

Thus, <strong>the</strong> next wave <strong>in</strong> sovereignty transformation overlapped with new regionalism rise.<br />

Regional <strong>in</strong>tegration <strong>in</strong>volves <strong>the</strong> delegation of part of <strong>in</strong>dividual state sovereignty to supranational<br />

structures. <strong>The</strong> various attempts have <strong>in</strong>volved <strong>in</strong>ternational cooperation among<br />

sovereign states <strong>and</strong> <strong>in</strong>ternational organizations that are comprised of sovereign states as members<br />

( Kobr<strong>in</strong> 2009). S<strong>in</strong>ce <strong>the</strong> 2000s fur<strong>the</strong>r globalization has caught up with complex relations<br />

of <strong>in</strong>terdependence between sovereign states of <strong>the</strong> post-Westphalian system <strong>and</strong> vertically<br />

<strong>in</strong>tegrated economic actors recognized <strong>and</strong> legitimized by those sovereigns. With transnational<br />

networks <strong>and</strong> <strong>the</strong> <strong>in</strong>ternationalisation of production, <strong>the</strong> focus <strong>in</strong> political economy relations has<br />

shifted from trade to <strong>in</strong>vestment. Consequently, <strong>the</strong> boundaries between <strong>the</strong> national <strong>and</strong> <strong>the</strong><br />

<strong>in</strong>ternational have blurred. Thus, <strong>in</strong>ternal sovereignty has become problematic <strong>and</strong> state control<br />

has eroded.<br />

Wirtschaft und <strong>Management</strong> · B<strong>and</strong> 33 · März 2023<br />

39


Oxana Karnaukhova<br />

<strong>The</strong> new wave of transformation is characterized by remarkable features. Deepen<strong>in</strong>g <strong>in</strong>tegration<br />

<strong>and</strong> mushroom-like ris<strong>in</strong>g regional associations found MNCs as conductors <strong>and</strong> agents. <strong>The</strong><br />

dramatic <strong>in</strong>crease of technology as a strategic <strong>in</strong>dustry has changed <strong>the</strong> perception of market<br />

constra<strong>in</strong>ts, br<strong>in</strong>g<strong>in</strong>g production to a level beyond national markets. A transnational network of<br />

relations, operat<strong>in</strong>g outside states, is becom<strong>in</strong>g a modern characteristic. Markets migrate to a<br />

cyberspace mess<strong>in</strong>g up virtual <strong>and</strong> physical region of activities.<br />

<strong>The</strong>se circumstances not only raise <strong>the</strong> question of <strong>the</strong> role of <strong>the</strong> state <strong>in</strong> <strong>the</strong> world-system,<br />

but also how leadership is exercised regionally or globally. <strong>The</strong> concept of leadership (Lake<br />

1993; Kai/Skaperdas 2005) describes how a group of highly developed states predeterm<strong>in</strong>es<br />

<strong>the</strong> nature <strong>and</strong> pace of global economic development <strong>and</strong> acts as a natural ‘centre of gravity’ for<br />

develop<strong>in</strong>g economies. In a sense, regional associations are structurally composed of drivers<br />

promot<strong>in</strong>g association <strong>and</strong> weaker economies or geopolitical actors. Such centres of gravity –<br />

drivers often use patronage as a political economy tool to create a special relationship between<br />

<strong>the</strong> dom<strong>in</strong>ant <strong>and</strong> <strong>the</strong> dependent; this is usually done for cultural reasons. In o<strong>the</strong>r words,<br />

patronage as a mechanism for exercis<strong>in</strong>g leadership is a strategy for acquir<strong>in</strong>g, ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g, <strong>and</strong><br />

enhanc<strong>in</strong>g political power by patrons (Kaufman 1974). Patronage is a particular type of dyadic<br />

exchange, characterized by unequal power <strong>and</strong> status (perceived or real); a particularistic <strong>and</strong><br />

private r elationship governed by <strong>the</strong> pr<strong>in</strong>ciple of reciprocity. However, this complementarity<br />

does not necessarily mean unidirectional dom<strong>in</strong>ance. “Clients”, i.e. emerg<strong>in</strong>g economies also<br />

use this mechanism to build strategies to protect <strong>and</strong> promote <strong>the</strong>ir <strong>in</strong>terests, <strong>and</strong> <strong>the</strong>ir use is<br />

conditioned by <strong>the</strong> set of <strong>in</strong>centives <strong>and</strong> dis<strong>in</strong>centives provided to <strong>the</strong>m (Peimani 1998; Piattoni<br />

2001). As I have argued elsewhere (Karnaukhova 2022), that, s<strong>in</strong>ce patronage implies that it<br />

impr<strong>in</strong>ts on <strong>the</strong> behaviour of politicians <strong>and</strong> <strong>in</strong>fluences <strong>the</strong> way <strong>the</strong>se politicians represent <strong>the</strong>ir<br />

<strong>in</strong>terests, patron leaders use this tool by b<strong>in</strong>d<strong>in</strong>g <strong>the</strong>ir clients with strong historical <strong>and</strong> cultural<br />

ties which resist radical political transformations. As global development shows, on <strong>the</strong> one<br />

h<strong>and</strong>, <strong>the</strong> way relations between global geopolitical actors are shaped <strong>and</strong> represented depends<br />

on <strong>the</strong> strategies <strong>and</strong> <strong>in</strong>struments applied, <strong>and</strong> on <strong>the</strong> o<strong>the</strong>r h<strong>and</strong>, on <strong>the</strong> recognition of <strong>the</strong><br />

equal importance of Western <strong>and</strong> non-Western, non-European actors (Bossuyt 2019; Laruelle<br />

2021). Thus, with<strong>in</strong> <strong>the</strong> trend of regional <strong>in</strong>tegration <strong>and</strong> competition of leadership strategies, <strong>the</strong><br />

question of sovereignty, <strong>and</strong>, even more so, of economic sovereignty receives new impetus as<br />

<strong>the</strong> question of embedd<strong>in</strong>g oneself <strong>in</strong> global networks of geo-economic relations to streng<strong>the</strong>n<br />

one’s own competitiveness. With<strong>in</strong> <strong>the</strong> Westernized discourse of geoeconomic leadership,<br />

striv<strong>in</strong>g for national competitiveness <strong>and</strong> follow<strong>in</strong>g economic sovereignty does not underm<strong>in</strong>e<br />

global cooperation; on <strong>the</strong> contrary, openness promotes competitiveness. Central Asia demonstrates<br />

that <strong>the</strong> complex geopolitical context impedes <strong>the</strong> harmonious development of relations<br />

<strong>in</strong> <strong>the</strong> region.<br />

40 Wirtschaft und <strong>Management</strong> · B<strong>and</strong> 33 · März 2023


Central Asia between <strong>the</strong> European Union <strong>and</strong> Eurasian Economic Union: Sovereignty Underestimated<br />

3 Central Asia <strong>in</strong> Contested Integration Projects<br />

Central Asia has survived several waves of <strong>in</strong>tegration, but even today is caught between <strong>the</strong> two<br />

<strong>in</strong>tegration unions of <strong>the</strong> <strong>EU</strong> <strong>and</strong> EA<strong>EU</strong>, be<strong>in</strong>g under pressure from Ch<strong>in</strong>a <strong>and</strong> Turkey, <strong>and</strong> torn<br />

by <strong>in</strong>tra-regional rivalry for <strong>the</strong> ‘centre of gravity’ of <strong>the</strong> Eurasian region. With <strong>the</strong> collapse of <strong>the</strong><br />

Soviet Union <strong>in</strong> 1991, <strong>the</strong> <strong>in</strong>dependent Central Asian republics faced serious security problems<br />

related to border demarcation, a difficult economic situation <strong>and</strong> ethno-religious conflicts. At <strong>the</strong><br />

same time, this period was favourable for <strong>the</strong> start of new <strong>in</strong>tegration processes <strong>in</strong> <strong>the</strong> region,<br />

as <strong>the</strong> economies of <strong>the</strong> Central Asian republics were formed with<strong>in</strong> a s<strong>in</strong>gle Soviet system <strong>and</strong><br />

did not have time to break down <strong>the</strong>ir <strong>in</strong>terdependence. Moreover, <strong>in</strong> <strong>the</strong> 1990s, Central Asia was<br />

neglected by Russia, Ch<strong>in</strong>a <strong>and</strong> <strong>the</strong> US, <strong>and</strong> <strong>the</strong> European experience, while demonstrat<strong>in</strong>g <strong>the</strong><br />

benefits of geo-economic <strong>in</strong>tegration, could not serve as a practical model for regional association.<br />

<strong>The</strong>re were several projects survived through 1990s, although diverse <strong>in</strong> terms of resources<br />

<strong>and</strong> strategic goals, <strong>in</strong>clude <strong>the</strong> US’s New Silk Road Initiative (NSRI), India’s International North-<br />

South Transportation Corridor (INSTC), <strong>and</strong> Turkey’s Middle Corridor.<br />

<strong>The</strong> 1994-2005 period saw several attempts to launch different autonomous mechanisms of<br />

economic <strong>and</strong> political <strong>in</strong>tegration <strong>in</strong> <strong>the</strong> region: <strong>the</strong> Central Asian Union (CAU) (1994-1998); <strong>the</strong><br />

Central Asian Economic Community (CAEC) (1998-2001); <strong>and</strong> <strong>the</strong> Central Asian Cooperation<br />

Organization (CACO) (2001-2005). <strong>The</strong>se alliances were aimed at establish<strong>in</strong>g a free trade area,<br />

i.e. a customs, monetary <strong>and</strong> f<strong>in</strong>ancial union based on <strong>the</strong> <strong>EU</strong> model. A key factor <strong>in</strong> <strong>the</strong> failure<br />

of all <strong>the</strong> projects was <strong>the</strong> gap between <strong>the</strong> political discourse <strong>and</strong> <strong>the</strong> economic practice of<br />

<strong>in</strong>tegration. <strong>The</strong> similarity of political regimes did not promote <strong>in</strong>tegration; on <strong>the</strong> contrary, <strong>the</strong><br />

long-st<strong>and</strong><strong>in</strong>g practice of authoritarianism <strong>in</strong> <strong>the</strong> region cont<strong>in</strong>ued to be supported by national<br />

political elites. Economic sovereignty was strongly supported by <strong>the</strong> reluctance of states to<br />

coord<strong>in</strong>ate economic reforms <strong>and</strong> create compatible economies – <strong>in</strong> o<strong>the</strong>r words, to delegate<br />

some of <strong>the</strong> decision-mak<strong>in</strong>g autonomy of states to <strong>the</strong> supranational level.<br />

Asymmetry <strong>in</strong> <strong>the</strong> chosen leadership strategy can still be observed <strong>in</strong> <strong>the</strong> region. Not all of <strong>the</strong> five<br />

Central Asian republics have equally realised <strong>the</strong> <strong>in</strong>tegration impetus. Kazakhstan, Kyrgyzstan,<br />

Uzbekistan <strong>and</strong> Tajikistan (jo<strong>in</strong><strong>in</strong>g later <strong>and</strong> only partially) were <strong>in</strong>volved <strong>in</strong> <strong>the</strong> <strong>in</strong>tegration<br />

process <strong>in</strong> <strong>the</strong> region. In 1995 Turkmenistan declared its ‘neutral’ status of non-alignment to any<br />

of its neighbours’ <strong>in</strong>itiatives, but also to regional <strong>in</strong>itiatives <strong>in</strong> general. <strong>The</strong> political regimes <strong>in</strong><br />

Central Asia thus vary <strong>in</strong> <strong>the</strong>ir degree of openness, from Turkmenistan’s most closed society to<br />

Kyrgyzstan’s.<br />

<strong>The</strong> next wave of regional <strong>in</strong>tegration <strong>in</strong> <strong>the</strong> early 2000s is caused by <strong>the</strong> chang<strong>in</strong>g geopolitical<br />

environment around Central Asia. International security returns to <strong>the</strong> region as a key issue. <strong>The</strong><br />

question of <strong>the</strong> military operation <strong>in</strong> Afghanistan, <strong>and</strong> <strong>the</strong> corridor through Central Asia for drug<br />

traffick<strong>in</strong>g, human traffick<strong>in</strong>g, etc., receives close attention from <strong>in</strong>ternational organisations, but<br />

also <strong>in</strong> <strong>the</strong> foreign policy strategies of global leaders. Russia is shift<strong>in</strong>g its attention back to<br />

<strong>the</strong> region, <strong>and</strong> Ch<strong>in</strong>a is becom<strong>in</strong>g more <strong>in</strong>terested <strong>in</strong> geo-economic projects <strong>the</strong>re, while <strong>the</strong><br />

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Oxana Karnaukhova<br />

European Union is <strong>in</strong>clud<strong>in</strong>g closer cooperation with <strong>the</strong> CA5 on its agenda for global leadership.<br />

Russia’s renewed <strong>in</strong>terest <strong>in</strong> <strong>the</strong> region was embodied by its jo<strong>in</strong><strong>in</strong>g <strong>the</strong> Central Asian Cooperation<br />

Organisation <strong>in</strong> 2004. However, at that time, <strong>the</strong> emerg<strong>in</strong>g competition with <strong>the</strong> Eurasian<br />

Economic Community led to CAC’s merger with EuroAsEC <strong>in</strong> 2005 <strong>and</strong> fur<strong>the</strong>r fragmentation of<br />

<strong>the</strong> Central Asian geo-economic l<strong>and</strong>scape. Central Asia is thus becom<strong>in</strong>g <strong>in</strong>volved <strong>in</strong> <strong>the</strong> arena<br />

of competition between external powers.<br />

<strong>The</strong> collapse of CACO <strong>in</strong> 2005 led to a deterioration of cooperation between <strong>the</strong> Central Asian<br />

states <strong>and</strong> <strong>the</strong> disappearance of <strong>the</strong> regional dialogue format. Whereas <strong>the</strong> function<strong>in</strong>g of<br />

<strong>in</strong>tegration structures – albeit <strong>in</strong>effective – facilitated regular meet<strong>in</strong>gs, negotiations <strong>and</strong><br />

exchanges of views between <strong>the</strong> states, after 2005 <strong>the</strong> leaders of <strong>the</strong> Central Asian states meet<br />

only dur<strong>in</strong>g bilateral visits or summits with<strong>in</strong> <strong>the</strong> CIS, which was conceived as a platform for<br />

preserv<strong>in</strong>g historical-cultural, educational <strong>and</strong> humanitarian dialogue, but did not <strong>in</strong>clude effective<br />

mechanisms for economic (re-)<strong>in</strong>tegration. This widens <strong>the</strong> gap between <strong>the</strong> states, reduces<br />

<strong>the</strong> chances of f<strong>in</strong>d<strong>in</strong>g rational solutions to <strong>the</strong> most press<strong>in</strong>g issues on <strong>the</strong> regional agenda <strong>and</strong><br />

paralyses cooperation between <strong>the</strong> countries of <strong>the</strong> region (Krapohl/Vasileva-Dienes 2020).<br />

Serv<strong>in</strong>g as a model for successful <strong>in</strong>tegration <strong>and</strong> be<strong>in</strong>g a recognized leader, <strong>the</strong> European Union<br />

is still a relatively new player <strong>in</strong> <strong>the</strong> region. It had limited contacts with <strong>the</strong> Central Asian states<br />

<strong>and</strong> a few <strong>in</strong>terests <strong>in</strong> close <strong>in</strong>teractions before <strong>the</strong> 2000s (European Commission 1995). By<br />

nowadays <strong>the</strong> engagement is seen as connected with different development projects for fund<strong>in</strong>g<br />

<strong>and</strong> recently added security concerns <strong>in</strong>clud<strong>in</strong>g Ch<strong>in</strong>a (<strong>EU</strong> Security Strategy 2007; European<br />

Council 2012).<br />

S<strong>in</strong>ce <strong>the</strong> <strong>in</strong>dependence of Central Asian (CA) states, <strong>the</strong> <strong>EU</strong> has gradually <strong>in</strong>tensified its<br />

<strong>in</strong>volvement <strong>in</strong> <strong>the</strong> region through <strong>the</strong> Official Development Assistance (ODA). Follow<strong>in</strong>g <strong>the</strong><br />

OECD dataset, <strong>the</strong> ODA has been distributed unevenly across <strong>the</strong> CA states. <strong>The</strong> difference<br />

reflects <strong>the</strong> selectivity of targets <strong>and</strong> specific <strong>in</strong>terests of <strong>the</strong> donor. One of <strong>the</strong> largest recipients<br />

of <strong>the</strong> <strong>EU</strong> <strong>in</strong>stitutions’ ODA appears to be Kyrgyzstan with about US $593 million of grants <strong>and</strong><br />

loans by 2018 ma<strong>in</strong>ly aimed at <strong>the</strong> logistic projects. Tajikistan allocated $622 m. for education,<br />

public health, <strong>and</strong> rural development, followed by Uzbekistan – $263 m. Kazakhstan has ga<strong>in</strong>ed<br />

$300 m. for development assistance. F<strong>in</strong>ally, <strong>the</strong> smallest recipient of <strong>the</strong> <strong>EU</strong> ODA is Turkmenistan<br />

with around $104 m. assistance 1 . Thus, <strong>the</strong> <strong>EU</strong> is one of <strong>the</strong> major donors for <strong>the</strong> region with<br />

competitors from Russia, <strong>the</strong> USA, <strong>and</strong> Ch<strong>in</strong>a. For comparison, Russia allocated for <strong>the</strong> Kyrgyz<br />

Republic about $1,042 bn., naturally <strong>in</strong>creas<strong>in</strong>g its <strong>in</strong>vestments after 2015 via <strong>the</strong> Russian-Kyrgyz<br />

Development Fund, while Tajikistan was <strong>the</strong> primary ma<strong>in</strong> assistance object for <strong>the</strong> USAID.<br />

<strong>The</strong> Strategy 2007 was an agenda for global <strong>and</strong> comprehensive positive leadership promotion,<br />

whose efficiency was driven by <strong>the</strong> “<strong>the</strong> political goes first” idea: a state will<strong>in</strong>g to apply <strong>and</strong> be<br />

qualified for economic assistance has to answer to strict terms of <strong>the</strong> Europe-oriented political<br />

1 Source: OECD, Aid (ODA) disbursements to countries <strong>and</strong> regions.<br />

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Central Asia between <strong>the</strong> European Union <strong>and</strong> Eurasian Economic Union: Sovereignty Underestimated<br />

reform<strong>in</strong>g. Yet, <strong>in</strong> <strong>the</strong> Strategy security took priority, demonstrat<strong>in</strong>g <strong>the</strong> high importance of <strong>the</strong><br />

issue <strong>and</strong> def<strong>in</strong><strong>in</strong>g crucial <strong>in</strong>ternal <strong>and</strong> external <strong>in</strong>terests of <strong>the</strong> <strong>EU</strong>. It was quickly <strong>in</strong>corporated<br />

<strong>in</strong>to <strong>the</strong> orbit of <strong>in</strong>terests as a “bridge” between <strong>the</strong> Eastern Neighbourhood countries <strong>and</strong> <strong>the</strong><br />

ASEAN (European Council 2007). Later on, <strong>the</strong> CA became a play<strong>in</strong>g card <strong>in</strong> relations with <strong>the</strong><br />

Eastern competitors Russia <strong>and</strong> Ch<strong>in</strong>a, but not an equal <strong>and</strong> sovereign partner. Thus, <strong>the</strong> <strong>EU</strong> has<br />

questioned <strong>the</strong> pr<strong>in</strong>ciple of economic sovereignty <strong>and</strong> <strong>the</strong> autonomy of states to make strategic<br />

decisions for its own sake. Approach<strong>in</strong>g Central Asia as a peripheral zone, especially <strong>in</strong> decisionmak<strong>in</strong>g,<br />

<strong>and</strong> contrast<strong>in</strong>g <strong>EU</strong> values <strong>and</strong> <strong>in</strong>terests with those firmly rooted <strong>in</strong> <strong>the</strong> region deprive<br />

<strong>the</strong> Strategy of specificity <strong>and</strong> affect <strong>the</strong> effectiveness of implemented measures <strong>in</strong> practice.<br />

<strong>The</strong> pragmatic coherence <strong>and</strong> credibility of <strong>the</strong> relationship is confronted with threats of political<br />

<strong>and</strong> civilizational differences. Measures <strong>and</strong> mechanisms of support through <strong>the</strong> allocation<br />

of specific funds to <strong>the</strong> sectors of production concerned should, <strong>in</strong> <strong>the</strong> <strong>EU</strong>’s view, be <strong>in</strong> l<strong>in</strong>e<br />

with legislation on deepen<strong>in</strong>g democratisation. Unlike <strong>in</strong> <strong>the</strong> Eastern Neighbourhood, Central<br />

Asia does not see <strong>the</strong> European Union as a desirable place for <strong>in</strong>tegration, see<strong>in</strong>g itself as an<br />

<strong>in</strong>dependent player <strong>in</strong> <strong>the</strong> region <strong>and</strong> be<strong>in</strong>g able to choose its allies from a list of global powers.<br />

<strong>The</strong> ‘one size fits all’ approach clearly does not work with Central Asia.<br />

Despite <strong>the</strong> many <strong>in</strong>struments potentially available for regional development <strong>and</strong> susta<strong>in</strong>ability,<br />

<strong>the</strong> <strong>EU</strong> acts as a major donor, but is less visible <strong>in</strong> <strong>the</strong> region than, say, Ch<strong>in</strong>a or Turkey. <strong>EU</strong><br />

logistics projects such as TRACECA appear neglected, while <strong>in</strong>frastructure is dom<strong>in</strong>ated by<br />

Ch<strong>in</strong>ese <strong>and</strong> US <strong>in</strong>vestments, <strong>and</strong> soft power <strong>in</strong>struments are shared predom<strong>in</strong>antly by Russia<br />

<strong>and</strong> Japan (OECD 2018; OECD 2019).<br />

Compared to <strong>the</strong> previous iteration of <strong>the</strong> <strong>EU</strong> Global Strategy, <strong>the</strong> new version looks more<br />

pragmatic (Tocci 2016), but <strong>the</strong> basic idea of connectivity, aimed at Asia as a target of European<br />

engagement, rema<strong>in</strong>s unchanged through susta<strong>in</strong>able, <strong>in</strong>clusive, <strong>and</strong> rules-based <strong>in</strong>itiatives.<br />

Ano<strong>the</strong>r concept mirrored <strong>in</strong> <strong>the</strong> <strong>EU</strong> itself is susta<strong>in</strong>ability. It exploits <strong>the</strong> image of <strong>the</strong> <strong>EU</strong> as a<br />

bastion of stability, positivity <strong>and</strong> unobtrusiveness that compensate for relatively limited economic<br />

<strong>in</strong>vestment.<br />

<strong>The</strong> new <strong>EU</strong> Strategy for Central Asia, adopted on 17 June 2019, proposes an enhanced partnership<br />

<strong>in</strong> <strong>the</strong> areas of economic development (‘prosperity’), comprehensive security (‘resilience’)<br />

<strong>and</strong> enhanced cooperation with <strong>and</strong> with<strong>in</strong> Central Asia (EEAS 2019). <strong>The</strong> Strategy confirms that<br />

<strong>the</strong> <strong>EU</strong> has already earmarked €1.1 billion for cooperation with Central Asia, <strong>in</strong>clud<strong>in</strong>g over €454<br />

million for regional programmes promot<strong>in</strong>g cooperation <strong>in</strong> <strong>the</strong> fields of susta<strong>in</strong>able development<br />

<strong>and</strong> regional security. Geopolitical tensions are seen as one of <strong>the</strong> challenges to network<strong>in</strong>g<br />

<strong>in</strong> <strong>the</strong> region, with specific social network<strong>in</strong>g practices, shadow entrepreneurial behaviour <strong>and</strong><br />

autocratic powers; this challenge has to be overcome. For <strong>in</strong>stance, <strong>the</strong> <strong>EU</strong>-Kazakhstan Enhanced<br />

Partnership Agreement, ratified <strong>and</strong> <strong>in</strong> force s<strong>in</strong>ce 1 March 2020, exp<strong>and</strong>s <strong>the</strong> effectiveness of<br />

its policies through cooperation with state <strong>and</strong> non-state actors. All jo<strong>in</strong>t projects must comply<br />

with <strong>the</strong> ‘euro-st<strong>and</strong>ard’ of connectivity (Saari 2019), which competes with those of Russia <strong>and</strong><br />

Ch<strong>in</strong>a, i.e. <strong>the</strong> EA<strong>EU</strong> <strong>and</strong> <strong>the</strong> BRI.<br />

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Oxana Karnaukhova<br />

Follow<strong>in</strong>g <strong>the</strong> Strategy, <strong>the</strong> <strong>EU</strong> goes beyond governments <strong>and</strong> looks at civil society participation,<br />

demonstrat<strong>in</strong>g its ‘bl<strong>in</strong>dness’ to <strong>the</strong> authoritative presence of most of <strong>the</strong>ir visions, as ‘as experts<br />

on <strong>the</strong> ground, <strong>the</strong>y often lead <strong>the</strong> process of susta<strong>in</strong>able development’ (Von der Leyen 2019).<br />

<strong>The</strong> difficulty with this approach is <strong>the</strong> failure to underst<strong>and</strong> that all Central Asian elites are<br />

<strong>in</strong>terested <strong>in</strong> ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g a system of patrimonial rule. Moreover, Central Asia presents itself<br />

as an arena of <strong>in</strong>tra-regional compet<strong>in</strong>g leadership projects, shared between Kazakhstan <strong>and</strong><br />

Uzbekistan respectively. In particular, Uzbekistan’s concerns about its own sovereignty, its<br />

leadership position <strong>in</strong> <strong>the</strong> region <strong>and</strong> its ‘safe belt of friendly neighbours’ (Development Strategy<br />

2017) demonstrate <strong>the</strong> complexity of <strong>in</strong>tra-regional ties <strong>and</strong> <strong>in</strong>fluence <strong>the</strong> <strong>in</strong>terpretation of <strong>the</strong><br />

content of <strong>the</strong> partnership with <strong>the</strong> <strong>EU</strong>.<br />

To underst<strong>and</strong> <strong>the</strong> <strong>in</strong>ternal mechanisms of Central Asia’s <strong>in</strong>clusion <strong>in</strong> relations with <strong>the</strong> EA<strong>EU</strong>,<br />

attention should be paid to <strong>the</strong> concept of <strong>the</strong> ‘near abroad’ as an area of direct <strong>in</strong>terest <strong>and</strong><br />

streng<strong>the</strong>n<strong>in</strong>g Russia’s leadership position <strong>in</strong> <strong>the</strong> Eurasian region. <strong>The</strong> concept of <strong>the</strong> ‘near<br />

abroad’ <strong>in</strong> Russian foreign policy has been <strong>and</strong> rema<strong>in</strong>s an important concern of <strong>the</strong> Russian<br />

Council on Foreign Affairs, which supports <strong>and</strong> promotes Russia’s geopolitical <strong>in</strong>terests <strong>in</strong> <strong>the</strong><br />

region. This position is illustrated by <strong>the</strong> Collective Security Treaty. <strong>The</strong> Consortium was created<br />

as an extension of <strong>the</strong> Commonwealth of Independent States (CIS) <strong>in</strong> 1992 before <strong>the</strong> NATO-<br />

Russia summit <strong>in</strong> Rome <strong>and</strong> exp<strong>and</strong>ed <strong>in</strong>to an organization <strong>in</strong> 2002. It meant an alliance of Russia<br />

with Tajikistan, Kyrgyzstan <strong>and</strong> Kazakhstan. <strong>The</strong> last two mentioned countries later jo<strong>in</strong>ed<br />

<strong>the</strong> EA<strong>EU</strong>, with Kazakhstan as a found<strong>in</strong>g state.<br />

In 2001, <strong>the</strong> Agreement on <strong>the</strong> Eurasian Economic Community (EurAsEC), signed by <strong>the</strong> Russian<br />

Federation, Belarus, Kazakhstan, Kyrgyzstan <strong>and</strong> Tajikistan, gave new life to <strong>the</strong> Eurasian<br />

Community Customs Union. <strong>The</strong> Treaty confirmed <strong>the</strong> hierarchy with<strong>in</strong> <strong>the</strong> Union’s membership<br />

<strong>and</strong> Russia’s privileged position: 40% of <strong>the</strong> vote was given to <strong>the</strong> Russian Federation. Russian<br />

became <strong>the</strong> official language of <strong>the</strong> Union (see <strong>the</strong> 2000 Treaty on <strong>the</strong> Eurasian Economic Union).<br />

Armenia jo<strong>in</strong>ed <strong>the</strong> EurAsEC as an observer <strong>in</strong> 2003, <strong>and</strong> Uzbekistan became a member <strong>in</strong> 2006.<br />

Intraregional <strong>in</strong>tegration efforts faced competition from a stronger player <strong>and</strong> lost out (CACO<br />

<strong>and</strong> EurAsEC merged <strong>in</strong> 2005). Regional actors had different views on <strong>the</strong> cooperation regime<br />

<strong>and</strong> <strong>the</strong>ir political hierarchy meant that <strong>in</strong>tra-regional attempts ra<strong>the</strong>r quickly led to a merger <strong>in</strong>to<br />

larger <strong>in</strong>ter-regional <strong>in</strong>stitutional structures with <strong>in</strong>fluential decision-mak<strong>in</strong>g leaders.<br />

In 2011, as prime m<strong>in</strong>ister, Put<strong>in</strong> announced <strong>the</strong> creation of “a powerful supranational association<br />

capable of becom<strong>in</strong>g one of <strong>the</strong> poles of <strong>the</strong> modern world <strong>and</strong> serv<strong>in</strong>g as an effective bridge<br />

between Europe <strong>and</strong> <strong>the</strong> dynamic Asia-Pacific region, that is, to transform <strong>the</strong> Customs Union of<br />

Russia, Belarus <strong>and</strong> Kazakhstan <strong>in</strong>to <strong>the</strong> Common Economic Space <strong>and</strong> <strong>the</strong>n <strong>in</strong>to <strong>the</strong> Eurasian<br />

Union” (Put<strong>in</strong> 2011). <strong>The</strong> system of bilateral <strong>and</strong> regional multilateral agreements makes<br />

Eurasian <strong>in</strong>tegration more comprehensible for exist<strong>in</strong>g members <strong>and</strong> potential participants, <strong>and</strong><br />

<strong>the</strong> emphasis on scrupulous adherence to <strong>the</strong> pr<strong>in</strong>ciple of economic sovereignty makes it more<br />

resilient to global challenges. An important addition is <strong>the</strong> assertion of Russian leadership <strong>in</strong><br />

global economic, political projects, especially <strong>in</strong> <strong>the</strong> so-called security regions, i.e. Central Asia.<br />

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In contrast to <strong>the</strong> <strong>EU</strong>, <strong>the</strong> EA<strong>EU</strong> demonstrates flexibility <strong>and</strong> “bl<strong>in</strong>dness” to differences <strong>in</strong> <strong>the</strong><br />

political regimes of its potential members, which are distributed on a symbolical scale from<br />

relatively democratic (<strong>the</strong> Kyrgyz Republic) to <strong>the</strong> most authoritarian <strong>and</strong> socially closed (Turkmenistan).<br />

<strong>The</strong> proclaimed ‘economic prosperity for security’ looks like an advantage for Central Asian<br />

political elites to jo<strong>in</strong> <strong>the</strong> EA<strong>EU</strong>, <strong>in</strong> contrast to <strong>the</strong> <strong>EU</strong> with its strong desire for ‘political reform<br />

for security’. However, ‘<strong>the</strong> economy does not come first’. <strong>The</strong> likely merger of <strong>the</strong> Eurasian Economic<br />

Union (EA<strong>EU</strong>) <strong>and</strong> <strong>the</strong> Silk Road implies <strong>the</strong> creation of a common economic space on<br />

<strong>the</strong> cont<strong>in</strong>ent, ‘comb<strong>in</strong><strong>in</strong>g <strong>the</strong> potential of all <strong>in</strong>tegration formats such as <strong>the</strong> EA<strong>EU</strong>, <strong>the</strong> Belt <strong>and</strong><br />

Road (BRI), <strong>the</strong> Shanghai Cooperation Organisation (SCO) <strong>and</strong> ASEAN’ (Silk Road Brief<strong>in</strong>g 2017).<br />

<strong>The</strong> EA<strong>EU</strong>’s 2018 ‘Declaration on <strong>the</strong> Fur<strong>the</strong>r Development of Integration Processes with<strong>in</strong> <strong>the</strong><br />

Eurasian Economic Union’, which captures <strong>the</strong> idea of a ‘Greater Eurasian Partnership’, <strong>in</strong>troduces<br />

<strong>the</strong> next iteration of <strong>the</strong> same concept (Declaration 2018).<br />

4 “All eggs <strong>in</strong> one basket?”<br />

Apart from <strong>the</strong> risks associated with <strong>the</strong> difficult choice for Central Asian states <strong>in</strong> favour of one<br />

of <strong>the</strong> regional <strong>in</strong>tegration projects, a “new normal” agenda of a global scale has emerged over<br />

<strong>the</strong> last decade. As <strong>the</strong> World Economic Forum reports <strong>in</strong> 2022 (<strong>The</strong> Global <strong>Risks</strong> Report 2022),<br />

geopolitical contradictions are named among <strong>the</strong> most severe global risks for <strong>the</strong> next dozen<br />

of years. In such circumstances it looks <strong>in</strong>terest<strong>in</strong>g that on June 9 th , 2022, dur<strong>in</strong>g <strong>the</strong> Amundi<br />

World Investment Forum <strong>in</strong> Paris, Central Asia was announced as a desirable dest<strong>in</strong>ation for<br />

European <strong>in</strong>vestments for two ma<strong>in</strong> reasons – <strong>the</strong> economic sovereignty of emerg<strong>in</strong>g markets<br />

<strong>and</strong> decoupl<strong>in</strong>g geopolitical ties ei<strong>the</strong>r with Russia <strong>and</strong> Ch<strong>in</strong>a (AWIF 2022). While respondents <strong>in</strong><br />

Kazakhstan, Kyrgyzstan, <strong>and</strong> Tajikistan cited <strong>in</strong>terstate conflicts <strong>and</strong> geopolitization of strategic<br />

resources as <strong>the</strong> most conceivable risks, Uzbekistan <strong>and</strong> Turkmenistan did not provide sufficient<br />

data.<br />

Global Competitiveness Reports have demonstrated a ripple effect of global powers’ <strong>in</strong>terest <strong>in</strong><br />

Central Asia, both <strong>in</strong> terms of assess<strong>in</strong>g <strong>in</strong>vestment performance <strong>and</strong> try<strong>in</strong>g to compete with <strong>the</strong><br />

region’s leaders for <strong>in</strong>fluence – Ch<strong>in</strong>a, Russia, <strong>the</strong> US <strong>and</strong> Turkey. <strong>The</strong> <strong>EU</strong>’s attention to bilateral<br />

<strong>and</strong> multilateral engagement has decl<strong>in</strong>ed s<strong>in</strong>ce 2014, despite <strong>the</strong> adoption of <strong>the</strong> <strong>EU</strong> Strategy<br />

for Central Asia <strong>in</strong> 2019.<br />

Scenarios for <strong>the</strong> South Caucasus <strong>and</strong> Central Asia (2014) found that although short-term w<strong>in</strong>s<br />

could be achieved by a nation state <strong>in</strong>dividually, <strong>the</strong> long-term effects are possible only <strong>in</strong> regional<br />

cooperation. <strong>The</strong> question ra<strong>the</strong>r revolves around characteristics of such regional associations<br />

from geoeconomic <strong>and</strong> geopolitical po<strong>in</strong>ts of view.<br />

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In 2022, among <strong>the</strong> CA5, only Kazakhstan sufficiently demonstrates its leadership capabilities<br />

<strong>and</strong> will<strong>in</strong>gness to compete with established regional leaders – Russia, Turkey, etc. – <strong>in</strong> <strong>the</strong><br />

struggle for a favourable <strong>in</strong>vestment climate. In 2022 Kazakhstan took <strong>the</strong> 43rd place of 63<br />

national economies presented <strong>in</strong> <strong>the</strong> Global Competitiveness Index (GCI 2022) with 35th for<br />

<strong>the</strong> previous year. Among five Central Asian republics, only Kazakhstan is represented <strong>in</strong> <strong>the</strong><br />

World Economic Forum’s annual assessment. Among <strong>the</strong> challenges for 2022 presented by<br />

<strong>the</strong> Economic Research Institute (JSC of <strong>the</strong> M<strong>in</strong>istry of National Economy of <strong>the</strong> Republic of<br />

Kazakhstan) <strong>the</strong>re are political transformation, <strong>in</strong>crease <strong>in</strong> household <strong>in</strong>comes <strong>and</strong> reduction<br />

of <strong>in</strong>equality, streng<strong>the</strong>n<strong>in</strong>g human rights <strong>in</strong>stitutions, provid<strong>in</strong>g food security, <strong>and</strong> decentralization<br />

of local self-government (ibd). Curiously, <strong>the</strong> economic l<strong>and</strong>scape looks as follows: government<br />

efficiency as well as bus<strong>in</strong>ess efficiency sound susta<strong>in</strong>able for <strong>the</strong> period of 2018-2022<br />

<strong>and</strong> is on <strong>the</strong> 25th <strong>and</strong> 32nd place respectively. A significant drop <strong>in</strong> <strong>the</strong> <strong>in</strong>dex of economic<br />

performance from <strong>the</strong> 49th to <strong>the</strong> 58th position is a cause for concern. Comparably, Tajikistan<br />

took <strong>the</strong> 104th place <strong>in</strong> 2019, <strong>and</strong> Kyrgyz Republic <strong>the</strong> 96th. Uzbekistan <strong>and</strong> Turkmenistan have<br />

evaded assessment (GCR, 2019). Report 2019 h<strong>in</strong>ts at <strong>the</strong> need for structural change <strong>in</strong> <strong>the</strong> face<br />

of projected geopolitical risks, thus l<strong>in</strong>k<strong>in</strong>g <strong>the</strong> geopolitical context with economic susta<strong>in</strong>ability.<br />

Kazakhstan’s trade turnover with countries outside <strong>the</strong> Eurasian Economic Union (EA<strong>EU</strong>), as<br />

reported by <strong>the</strong> State Revenue Committee on July 19, 2022, <strong>in</strong>creased by 51.6 percent (<strong>The</strong><br />

Astana Times, 2022a). Despite an economic slowdown caused by <strong>the</strong> global p<strong>and</strong>emic <strong>and</strong><br />

<strong>the</strong> recent geopolitical events <strong>in</strong> Central Asia <strong>and</strong> Russia, Kazakhstan rema<strong>in</strong>s firm <strong>in</strong> its goal<br />

to provide a favorable <strong>in</strong>vestment climate <strong>and</strong> attract more <strong>in</strong>vestors. <strong>The</strong> role of <strong>the</strong> Foreign<br />

Investors’ Council (FIC), a Kazakh advisory <strong>and</strong> consultative body for <strong>in</strong>vestment, rema<strong>in</strong>s as<br />

important as ever (<strong>The</strong> Astana Times, 2022b).<br />

In addition to <strong>the</strong> demonstration of <strong>in</strong>dividual leadership from 2020, a unique format of regional<br />

<strong>in</strong>tegration has resurged on <strong>the</strong> grounds of mutually beneficial economic cooperation, <strong>the</strong> C5+1.<br />

<strong>The</strong> C5+1 economic cooperation format was created on <strong>the</strong> marg<strong>in</strong>s of <strong>the</strong> UN Assembly <strong>in</strong> 2015<br />

at <strong>the</strong> <strong>in</strong>itiative of <strong>the</strong> United States. It envisages a multilateral dialogue platform for cooperation<br />

between five Central Asian states – Kazakhstan, Uzbekistan, Turkmenistan, Tajikistan <strong>and</strong><br />

Kyrgyzstan – <strong>and</strong> <strong>the</strong>ir vis-à-vis worldwide.<br />

On October 15, 2020, <strong>the</strong> Foreign M<strong>in</strong>isters of <strong>the</strong> five Central Asian states <strong>and</strong> Russia met onl<strong>in</strong>e<br />

to adopt a “Statement of <strong>the</strong> Foreign M<strong>in</strong>isters of <strong>the</strong> Central Asian states <strong>and</strong> <strong>the</strong> Russian<br />

Federation on Strategic Directions for Cooperation” (Statement 2020). <strong>The</strong> third meet<strong>in</strong>g of this<br />

k<strong>in</strong>d signals <strong>the</strong> emergence of a diplomatic format similar to <strong>the</strong> American ‘C5+1’ that was established<br />

a few years ago. It should be noted that Ch<strong>in</strong>a, for its part, is also try<strong>in</strong>g to secure a similar<br />

“C5+1” approach to <strong>the</strong> region.<br />

<strong>The</strong> Kommersant newspaper writes: “From now on, Moscow will not only develop bilateral<br />

ties, but will consider Central Asia as a whole... This is a k<strong>in</strong>d of new strategy of Russian foreign<br />

policy <strong>in</strong> Central Asia”. However, it turns out that this is not a new strategy at all but <strong>the</strong> old<br />

one, as, “ accord<strong>in</strong>g to Moscow’s plan, <strong>the</strong> result of this process should be a jo<strong>in</strong>t vision for <strong>the</strong><br />

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development of cooperation, <strong>and</strong> Russia was seen by <strong>the</strong> “five” not so much as a “+1”, but, <strong>in</strong> fact,<br />

as <strong>the</strong> sixth member of <strong>the</strong>ir association.” (Kommersant 2020).<br />

Meanwhile, <strong>the</strong> five Central Asian countries have developed <strong>the</strong>ir own format of Consultative<br />

Meet<strong>in</strong>gs of Presidents. <strong>The</strong>se countries have been develop<strong>in</strong>g s<strong>in</strong>ce 2018. <strong>The</strong>re have already<br />

been two meet<strong>in</strong>gs <strong>in</strong> this format: <strong>in</strong> March 2018 <strong>in</strong> Astana <strong>and</strong> <strong>in</strong> October 2019 <strong>in</strong> Tashkent.<br />

“<strong>The</strong> Central Asian Stans” is gradually acquir<strong>in</strong>g its actorness <strong>in</strong> <strong>the</strong> <strong>in</strong>ternational system. This<br />

actorness as a capacity to behave <strong>in</strong>dependently <strong>and</strong> <strong>in</strong>teract with o<strong>the</strong>r actors <strong>in</strong> <strong>the</strong> <strong>in</strong>ternational<br />

system has to be taken <strong>in</strong>to account when analys<strong>in</strong>g <strong>the</strong> modality of <strong>the</strong> different 5+1<br />

formats. Often <strong>in</strong> <strong>the</strong> analysis <strong>the</strong> focus lies on <strong>the</strong> figure on <strong>the</strong> right side of this arithmetic<br />

formula (i.e. on <strong>the</strong> 1), <strong>and</strong> underestimates or even neglect <strong>the</strong> figure on <strong>the</strong> left side (i.e. <strong>the</strong><br />

figure 5). <strong>The</strong> cooperation platform C5+1 (5 Central Asian states+1 partner) has become an<br />

arena with a supermarket effect, where cooperation <strong>in</strong>itiatives com<strong>in</strong>g from outside are widely<br />

discussed from <strong>the</strong> perspective of regional benefits <strong>and</strong> national <strong>in</strong>terests (Statement 2020).<br />

C5 version would mean that Central Asia is structurally coherent <strong>and</strong> closed to entry by o<strong>the</strong>r<br />

states; but open functionally. <strong>The</strong> C5 formula should be a substantial pr<strong>in</strong>ciple for <strong>in</strong>tra- regional<br />

development. When <strong>the</strong> great powers’ policies <strong>in</strong> Central Asia are analysed, <strong>the</strong>y are often viewed<br />

through <strong>the</strong> prism of <strong>the</strong> <strong>in</strong>terests of <strong>the</strong>se leaders. It is extremely important to <strong>in</strong>creas<strong>in</strong>gly<br />

emphasize <strong>the</strong> <strong>in</strong>terests of <strong>the</strong> Central Asian states <strong>the</strong>mselves, as Kazakhstan does, specifically<br />

<strong>the</strong>ir jo<strong>in</strong>t <strong>in</strong>terests as an <strong>in</strong>tegrated region. It is essential that <strong>the</strong> membership of <strong>the</strong> two<br />

states <strong>in</strong> <strong>the</strong> EA<strong>EU</strong> should not contradict or <strong>in</strong>terfere with <strong>the</strong> regional relations of <strong>the</strong> Central<br />

Asian states. This step is <strong>in</strong>tended to destroy <strong>the</strong> postcolonial situation <strong>and</strong> to avoid a patronage<br />

policy of any k<strong>in</strong>d.<br />

5 Conclusion<br />

<strong>The</strong> world has entered a period of leadership restructur<strong>in</strong>g. What is critical to this approach is <strong>the</strong><br />

underst<strong>and</strong><strong>in</strong>g <strong>and</strong> acceptance of <strong>the</strong> role of new powers from former global peripheries. Central<br />

Asia is among <strong>the</strong> regions that have been reimag<strong>in</strong>ed from a less important to a high priority<br />

‘neighbourhood’ position. This region of ‘security’ is localised between two eastern powers –<br />

Russia <strong>and</strong> Ch<strong>in</strong>a – <strong>and</strong> one western power – Europe. Central Asia’s central position <strong>in</strong> Eurasia<br />

<strong>and</strong> its complex history have made it an important target of geopolitical security strategies <strong>and</strong><br />

clash<strong>in</strong>g economic <strong>in</strong>terests. After February 24th 2022, it seems clear that <strong>the</strong> Central Asian<br />

vector <strong>in</strong> <strong>the</strong> struggle for regional leadership between <strong>the</strong> <strong>EU</strong> <strong>and</strong> <strong>the</strong> EA<strong>EU</strong> will <strong>in</strong>tensify. Despite<br />

<strong>the</strong> external ethno-cultural <strong>and</strong> ideological similarities, however, <strong>the</strong> region cannot yet lay claim<br />

to collective decision-mak<strong>in</strong>g. Each of <strong>the</strong> CA5 states has <strong>the</strong> potential to be an emerg<strong>in</strong>g market.<br />

And it is precisely this characteristic that reduces <strong>the</strong> effect of ongo<strong>in</strong>g economic diplomacy<br />

efforts. Multilateral (cooperative) architecture with a strong focus on economic stability, political<br />

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Oxana Karnaukhova<br />

security, <strong>and</strong> avoidance to evolve any question of sovereignty <strong>in</strong> strategic decision- mak<strong>in</strong>g looks<br />

more efficient for <strong>the</strong> target region.<br />

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David Morris<br />

<strong>The</strong> Huawei battleground:<br />

A critical case of political risk <strong>in</strong> <strong>the</strong><br />

new global power contest<br />

Abstract<br />

David Morris<br />

At a time of global power contest between <strong>the</strong> United States (US) <strong>and</strong> Ch<strong>in</strong>a, Corv<strong>in</strong>us University of Budapest<br />

& United Nations Economic <strong>and</strong><br />

Huawei has become emblematic of <strong>the</strong> political risks to firms. New technologies Social Commission for Asia <strong>and</strong><br />

are a key battleground between <strong>the</strong> two major economies <strong>and</strong> <strong>the</strong> lead<strong>in</strong>g role of <strong>the</strong> Pacific (ESCAP)<br />

Huawei <strong>in</strong> Fifth Generation (5G) mobile networks <strong>and</strong> o<strong>the</strong>r technologies of <strong>the</strong><br />

so-called Fourth Industrial Revolution – <strong>and</strong> <strong>the</strong> national security implications – have placed <strong>the</strong><br />

firm <strong>in</strong> <strong>the</strong> fir<strong>in</strong>g l<strong>in</strong>e of US sanctions. This bus<strong>in</strong>ess case study raises questions about identify<strong>in</strong>g,<br />

assess<strong>in</strong>g <strong>and</strong> manag<strong>in</strong>g cyber risks, likely European b<strong>and</strong>wagon<strong>in</strong>g with <strong>the</strong> US <strong>in</strong> its strategic<br />

competition with Ch<strong>in</strong>a, <strong>the</strong> global governance of new technologies, potential decoupl<strong>in</strong>g of<br />

technological value cha<strong>in</strong>s <strong>and</strong> <strong>the</strong> impacts on bus<strong>in</strong>esses from all countries.<br />

One of <strong>the</strong> critical areas of European <strong>in</strong>terdependence with Ch<strong>in</strong>a that paradoxically simultaneously<br />

exhibits conflict, competition, convergence <strong>and</strong> cooperation is <strong>the</strong> rapidly evolv<strong>in</strong>g array of<br />

products, services <strong>and</strong> platforms that rely upon digital connectivity. New technologies promise<br />

to transform lifestyles <strong>and</strong> <strong>in</strong>dustries <strong>in</strong> <strong>the</strong> years ahead, driven by <strong>in</strong>novation <strong>in</strong> comput<strong>in</strong>g, communications,<br />

artificial <strong>in</strong>telligence <strong>and</strong> data analytics. This Fourth Industrial Revolution (Schwab,<br />

2016) is widely expected to connect devices <strong>and</strong> much of <strong>the</strong> physical environment to transform<br />

energy, transport, <strong>in</strong>dustrial production, consumption <strong>and</strong> waste management by radically<br />

reduc<strong>in</strong>g costs <strong>and</strong> yield<strong>in</strong>g huge quantities of data to target products <strong>and</strong> services to meet <strong>in</strong> <strong>in</strong>dividual<br />

needs <strong>and</strong> to transition to greater susta<strong>in</strong>ability. <strong>The</strong>se transformative new connectivities<br />

raise questions about technological governance, such as <strong>the</strong> values underp<strong>in</strong>n<strong>in</strong>g new bus<strong>in</strong>ess<br />

models, rules, norms <strong>and</strong> st<strong>and</strong>ards <strong>and</strong> <strong>the</strong>ir impact on <strong>the</strong> public good <strong>and</strong> personal privacy.<br />

<strong>The</strong>y also raise important challenges for national security. Both <strong>the</strong> US <strong>and</strong> Ch<strong>in</strong>a have taken a<br />

security-focused approach to technology <strong>and</strong> this has impacts across all bus<strong>in</strong>esses as well as<br />

on <strong>the</strong> broader <strong>in</strong>ternational system. Huawei is exam<strong>in</strong>ed here as a particular target of <strong>the</strong> US<br />

contest with Ch<strong>in</strong>a that illustrates a wide range of political risks.<br />

Huawei, a leader <strong>in</strong> Fifth Generation (5G) wireless <strong>and</strong> fibre telecommunications networks, which<br />

will underp<strong>in</strong> Fourth Industrial Revolution technologies, was first s<strong>in</strong>gled out by <strong>the</strong> US <strong>and</strong> some<br />

of its allies with alarm<strong>in</strong>g claims of espionage risks <strong>and</strong> o<strong>the</strong>r threats to national security. Fur<strong>the</strong>r,<br />

<strong>the</strong> US <strong>and</strong> o<strong>the</strong>rs have also become concerned that Huawei <strong>and</strong> o<strong>the</strong>r Ch<strong>in</strong>ese firms are construct<strong>in</strong>g<br />

<strong>in</strong>ternational <strong>in</strong>frastructure <strong>and</strong> develop<strong>in</strong>g global rules <strong>and</strong> st<strong>and</strong>ards that will extend<br />

Ch<strong>in</strong>ese state power. Because of <strong>the</strong> nature of national security (<strong>in</strong>clud<strong>in</strong>g espionage <strong>and</strong> o<strong>the</strong>r<br />

<strong>in</strong>formation that may never be made public), <strong>the</strong> debate to date has been largely evidence-free,<br />

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David Morris<br />

but never<strong>the</strong>less raises serious risks. In spirall<strong>in</strong>g distrust <strong>in</strong> Eurasia <strong>and</strong> between <strong>the</strong> US <strong>and</strong><br />

Ch<strong>in</strong>a, expectations are grow<strong>in</strong>g that complex technological <strong>in</strong>terdependence may collapse <strong>and</strong><br />

multiple regions of compet<strong>in</strong>g technology rules, norms <strong>and</strong> st<strong>and</strong>ards could develop, potentially<br />

decoupl<strong>in</strong>g Europe from Asia.<br />

<strong>The</strong> Huawei case is a rapidly chang<strong>in</strong>g contemporary case. This analysis is based on a series of<br />

<strong>in</strong>terviews with key stakeholders <strong>and</strong> experts across a range of geographies, participation <strong>in</strong> a<br />

range of relevant onl<strong>in</strong>e <strong>and</strong> live events <strong>in</strong>clud<strong>in</strong>g Huawei events, as well as a survey of <strong>the</strong> contemporary<br />

literature, th<strong>in</strong>k tank reports <strong>and</strong> media.<br />

1 Introduction to Huawei<br />

Huawei Technologies Co. Ltd was established <strong>in</strong> Shenzhen <strong>in</strong> 1987 by an early-retired People’s<br />

Liberation Army eng<strong>in</strong>eer, Ren Zhengfei, who set out to pursue bus<strong>in</strong>ess success <strong>in</strong> <strong>the</strong> early<br />

years of Ch<strong>in</strong>a’s “reform <strong>and</strong> open<strong>in</strong>g up” period. <strong>The</strong> company that he founded <strong>in</strong>itially traded<br />

<strong>in</strong> telecommunications equipment <strong>and</strong> gradually grew as a manufacturer, with its bus<strong>in</strong>ess<br />

success over time based on a culture of customer service, which differentiated Huawei <strong>in</strong> an<br />

<strong>in</strong>dustry <strong>in</strong> which large, complacent telecommunications companies rarely focused on <strong>the</strong>ir<br />

customers. Unable <strong>in</strong>itially to compete with major <strong>in</strong>ternational firms <strong>in</strong> <strong>the</strong> major cities of Ch<strong>in</strong>a,<br />

Huawei focused on provid<strong>in</strong>g low-cost solutions to customers <strong>in</strong> unserved markets, from underdeveloped<br />

rural telecommunications markets <strong>in</strong> Ch<strong>in</strong>a to develop<strong>in</strong>g nation markets from Asia<br />

to Africa. <strong>The</strong> firm was unique <strong>in</strong> Ch<strong>in</strong>a (<strong>and</strong> unusual <strong>in</strong> <strong>the</strong> world) <strong>in</strong> its corporate structure, <strong>in</strong><br />

which Ren himself reta<strong>in</strong>s a small 1.4 per cent stake <strong>and</strong> shares ownership with more than half<br />

of <strong>the</strong> global staff, with a rotat<strong>in</strong>g chair. This unusual structure has endured, even as <strong>the</strong> firm<br />

has risen to global scale, <strong>and</strong> may <strong>in</strong>deed contribute to <strong>the</strong> company’s “wolf” culture of long<br />

hours <strong>and</strong> dedication to bus<strong>in</strong>ess success. Its representatives <strong>in</strong>terviewed for this research also<br />

believed Huawei’s unique structure allows <strong>the</strong> firm to cont<strong>in</strong>ue to th<strong>in</strong>k long term <strong>and</strong> to endure,<br />

despite <strong>the</strong> barrage of challenges it has faced <strong>in</strong> <strong>the</strong> <strong>in</strong>ternational bus<strong>in</strong>ess environment, when<br />

a public company may f<strong>in</strong>d its share value would have driven it out of bus<strong>in</strong>ess long ago. <strong>The</strong><br />

unique culture of Huawei, endur<strong>in</strong>g aga<strong>in</strong>st a wide range of risks to its own operations, has<br />

encouraged it to keep “fight<strong>in</strong>g” <strong>and</strong> to double down on its long-term strategies to lead <strong>in</strong> new<br />

technologies. Huawei has <strong>in</strong>vested over decades <strong>in</strong> a massive research <strong>and</strong> development effort<br />

to achieve its contemporary market-lead<strong>in</strong>g position <strong>in</strong> 5G telecommunications <strong>and</strong> a range of<br />

o<strong>the</strong>r products <strong>and</strong> services (Tian 2017).<br />

Like o<strong>the</strong>r globalised Ch<strong>in</strong>ese firms, Huawei is deeply embedded <strong>in</strong> <strong>in</strong>ternational value cha<strong>in</strong>s,<br />

partner<strong>in</strong>g with firms <strong>and</strong> governments around <strong>the</strong> world, develop<strong>in</strong>g communications network<br />

equipment <strong>and</strong> <strong>in</strong>frastructure, <strong>and</strong> consumer communications products <strong>and</strong> services. It provides<br />

equipment to many of its competitors <strong>in</strong> Europe <strong>and</strong> elsewhere <strong>and</strong> <strong>in</strong>deed holds <strong>the</strong> majority of<br />

patents <strong>and</strong> o<strong>the</strong>r <strong>in</strong>tellectual property <strong>in</strong> relation to 5G telecommunications.<br />

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<strong>The</strong> Huawei battleground: A critical case of political risk <strong>in</strong> <strong>the</strong> new global power contest<br />

2 <strong>The</strong> geopolitical response<br />

Despite deep <strong>in</strong>terdependence <strong>in</strong> technological value cha<strong>in</strong>s that developed over <strong>the</strong> decades<br />

of globalisation s<strong>in</strong>ce late <strong>in</strong> <strong>the</strong> twentieth century, states can be expected to seek to benefit<br />

from such <strong>in</strong>terdependence while mitigat<strong>in</strong>g vulnerabilities to competitors <strong>and</strong> <strong>in</strong>deed seek<strong>in</strong>g<br />

to exploit competitor vulnerabilities. Such actions are consistent with <strong>in</strong>terdependence <strong>the</strong>ory<br />

(Keohane 1982, 1984; Keohane/Nye 2021) but became more overtly weaponised dur<strong>in</strong>g <strong>the</strong><br />

tumultuous years of <strong>the</strong> Donald Trump presidency of <strong>the</strong> US. Trump sought <strong>in</strong>st<strong>in</strong>ctive disruption<br />

ra<strong>the</strong>r than <strong>in</strong>ternational cooperation <strong>and</strong> rhetorically raised <strong>the</strong> strategic option of <strong>the</strong> US<br />

decoupl<strong>in</strong>g from Ch<strong>in</strong>a, which at its most extreme would have led <strong>the</strong> dismantl<strong>in</strong>g of <strong>the</strong> <strong>in</strong>ternational<br />

system on which globalisation had been built. While US actions did not match <strong>the</strong> rhetoric,<br />

Huawei was however s<strong>in</strong>gled out <strong>in</strong> <strong>the</strong> Trump years as a target to demonstrate US resolve.<br />

Huawei was amongst <strong>the</strong> first <strong>and</strong> certa<strong>in</strong>ly <strong>the</strong> most prom<strong>in</strong>ent firm to be s<strong>in</strong>gled out as a<br />

cyber security risk <strong>in</strong> <strong>the</strong> US-Ch<strong>in</strong>a tech contest. <strong>The</strong> firm certa<strong>in</strong>ly challenges US aspirations<br />

to ma<strong>in</strong>ta<strong>in</strong> technological dom<strong>in</strong>ance, although <strong>in</strong>terest<strong>in</strong>gly no US firm has become globally<br />

competitive <strong>in</strong> 5G <strong>and</strong> <strong>in</strong>deed many US firms had – until US bans on Huawei <strong>and</strong> o<strong>the</strong>r Ch<strong>in</strong>ese<br />

technologies – built supply cha<strong>in</strong> <strong>in</strong>tegration with Huawei products <strong>and</strong> services. Huawei has<br />

long been considered a national security risk by <strong>the</strong> US security establishment because of <strong>the</strong><br />

military background of its founder <strong>and</strong> o<strong>the</strong>r personnel l<strong>in</strong>ks to state security services, as well as<br />

<strong>the</strong> capability of all telecommunications equipment <strong>and</strong> service providers to <strong>in</strong>tercept traffic or<br />

to be subject to <strong>in</strong>terception by state espionage agencies (Bald<strong>in</strong>g 2019).<br />

As one <strong>in</strong>terviewee for this research commented “telecommunications is 100% geopolitical”.<br />

Fur<strong>the</strong>r, <strong>the</strong> same <strong>in</strong>terviewee (a former Huawei employee) claimed Huawei generates more<br />

complex user profiles than technically necessary <strong>and</strong> exports data to Ch<strong>in</strong>a for technical<br />

network <strong>and</strong> protocol support, ra<strong>the</strong>r than to provide full services with<strong>in</strong> country. Never<strong>the</strong>less,<br />

little evidence has been presented publicly of widely-repeated claims that Huawei has facilitated<br />

espionage <strong>and</strong> Huawei has – <strong>in</strong> turn – consistently denied such claims. <strong>The</strong> claims of cyber<br />

risks are never<strong>the</strong>less regularly repeated <strong>in</strong> th<strong>in</strong>k tank <strong>and</strong> media reports (RWR Advisory Group<br />

2019). Huawei has also been accused, like many Ch<strong>in</strong>ese firms, of steal<strong>in</strong>g <strong>in</strong>tellectual property,<br />

although <strong>the</strong> most high-profile legal action mak<strong>in</strong>g such a claim, a suit launched by Cisco <strong>in</strong><br />

2003, was not successful (Tian 2017).<br />

Huawei was first banned from <strong>in</strong>stall<strong>in</strong>g a 5G network on national security grounds by Australia,<br />

a staunch US ally, <strong>in</strong> 2018, based on assessments that risks to critical <strong>in</strong>frastructure could not be<br />

managed o<strong>the</strong>rwise (Morris 2021). By May 2019, <strong>the</strong> US had followed, plac<strong>in</strong>g Huawei on a trade<br />

blacklist, deploy<strong>in</strong>g its global market power <strong>and</strong> its lead<strong>in</strong>g position <strong>in</strong> semiconductor technology<br />

to restrict access to US components, later tighten<strong>in</strong>g those restrictions to prevent Huawei from<br />

access<strong>in</strong>g all semiconductors based on US technology (Lim/Ferguson 2019). <strong>The</strong> US brought<br />

<strong>the</strong> battle to Europe by promot<strong>in</strong>g a so-called “Clean Network”, an alliance of “trusted” counties<br />

<strong>and</strong> firms committed to remov<strong>in</strong>g “ authoritarian malign actors, such as <strong>the</strong> Ch<strong>in</strong>ese Communist<br />

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David Morris<br />

Party” from <strong>the</strong>ir cyber supply cha<strong>in</strong>s (U.S. Department of State 2020). This was accompanied<br />

by a range of new measures securitis<strong>in</strong>g technology supply cha<strong>in</strong>s, <strong>in</strong>creased <strong>in</strong>vestment <strong>in</strong><br />

strategic research <strong>and</strong> development to compete with Ch<strong>in</strong>a, a fund for re-shor<strong>in</strong>g semiconductor<br />

manufactur<strong>in</strong>g to <strong>the</strong> US <strong>and</strong> a $60 billion International Development <strong>and</strong> F<strong>in</strong>ance Corporation<br />

fund to encourage develop<strong>in</strong>g countries not to buy from Ch<strong>in</strong>ese suppliers (Capri 2020). <strong>The</strong><br />

sanctions have crippled Huawei’s mobile phone bus<strong>in</strong>ess <strong>and</strong> <strong>the</strong> company’s f<strong>in</strong>ancial performance<br />

suffered <strong>in</strong> 2020 <strong>and</strong> 2021.<br />

In a dramatic episode <strong>in</strong> December 2018, <strong>the</strong> US requested its ally Canada to arrest <strong>and</strong> deta<strong>in</strong><br />

Huawei’s Chief F<strong>in</strong>ancial Officer, Meng Wanzhou, while she transited Vancouver airport. <strong>The</strong> US<br />

sought her extradition for fraud, charg<strong>in</strong>g that Meng covered up attempts by Huawei entities to<br />

evade US sanctions aga<strong>in</strong>st Iran. <strong>The</strong> personalised action aga<strong>in</strong>st Meng (<strong>the</strong> daughter of Huawei’s<br />

founder Ren) suggested an element of geopolitical <strong>the</strong>atre. Target<strong>in</strong>g a senior executive was a<br />

highly unusual action <strong>and</strong>, <strong>in</strong>deed, while numerous US <strong>and</strong> o<strong>the</strong>r <strong>in</strong>ternational firms have been<br />

pursued for violat<strong>in</strong>g US sanctions aga<strong>in</strong>st Iran, senior executives have not typically been arrested<br />

or taken <strong>in</strong>to custody (Sachs 2018). <strong>The</strong> drama cont<strong>in</strong>ued with Ch<strong>in</strong>a deta<strong>in</strong><strong>in</strong>g two Canadians,<br />

Michael Kovrig <strong>and</strong> Michael Spavor, on spy<strong>in</strong>g charges, <strong>in</strong> what appeared to be alarm<strong>in</strong>g tit- fortat<br />

punishment of Canada (<strong>in</strong>deed both were freed follow<strong>in</strong>g an agreement reached to return<br />

Meng to Ch<strong>in</strong>a <strong>in</strong> September 2021).<br />

Despite <strong>the</strong> US campaign aga<strong>in</strong>st Huawei, <strong>the</strong> firm never<strong>the</strong>less cont<strong>in</strong>ues – at <strong>the</strong> time of writ<strong>in</strong>g<br />

– to be an attractive partner to a wide range of governments, firms <strong>and</strong> consumers across much<br />

of <strong>the</strong> world because of its technological leadership <strong>and</strong> cost competitiveness. Huawei has<br />

partnership with more than fifty <strong>in</strong>ternational carriers to provide 5G network equipment <strong>and</strong><br />

services (Pham 2019) <strong>and</strong> Huawei itself claims to be serv<strong>in</strong>g more than 120 countries with its<br />

full range of products <strong>and</strong> services, or about one third of <strong>the</strong> world’s population. In <strong>the</strong> develop<strong>in</strong>g<br />

world, Huawei has become a key actor <strong>in</strong> Ch<strong>in</strong>a’s so-called “digital silk road” partnerships, <strong>in</strong><br />

which Ch<strong>in</strong>ese banks provide a mix of concessional <strong>and</strong> commercial f<strong>in</strong>ance to support develop<strong>in</strong>g<br />

countries <strong>in</strong> development of satellite, underwater <strong>and</strong> terrestrial communications networks<br />

<strong>and</strong> so-called “safe cities” <strong>and</strong> “safe ports”. <strong>The</strong>se latter systems utilise artificial <strong>in</strong>telligence <strong>and</strong><br />

surveillance technology for security services, all ostensibly aimed at improv<strong>in</strong>g public safety<br />

<strong>and</strong> crime detection but criticised for export<strong>in</strong>g Ch<strong>in</strong>ese “surveillance state” models (Hillman/<br />

McCalp<strong>in</strong> 2019). Huawei has been accused of provid<strong>in</strong>g <strong>in</strong>tercepted data to African governments<br />

to spy on, locate <strong>and</strong> silence political opponents (McMaster 2020; Hillman/Sacks 2021).<br />

In Europe, some have followed <strong>the</strong> US lead <strong>in</strong> bann<strong>in</strong>g Huawei <strong>and</strong> some have not, at least so<br />

far. In many European companies <strong>the</strong>re is a highly competitive environment between Huawei –<br />

on <strong>the</strong> one h<strong>and</strong> – recognised as leader <strong>in</strong> 5G network technology as well as be<strong>in</strong>g <strong>the</strong> lowest<br />

cost supplier, <strong>and</strong> – on <strong>the</strong> o<strong>the</strong>r h<strong>and</strong> – Ericsson, considered by many <strong>in</strong> <strong>the</strong> <strong>in</strong>dustry to provide<br />

higher quality. Huawei has won contracts to supply half <strong>the</strong> 5G network <strong>in</strong> Germany <strong>and</strong> Spa<strong>in</strong>,<br />

while Ericsson has won contracts <strong>in</strong> Norway <strong>and</strong> Hungary (Fletcher 2019). Both Germany <strong>and</strong><br />

<strong>the</strong> United K<strong>in</strong>gdom (UK) planned to proceed with Huawei for non-core components of <strong>the</strong>ir 5G<br />

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<strong>The</strong> Huawei battleground: A critical case of political risk <strong>in</strong> <strong>the</strong> new global power contest<br />

networks despite confidential US security brief<strong>in</strong>gs (Ikenson 2019; Perez/Lau 2019; Mikhailova<br />

2020), although after <strong>the</strong> US extended its sanctions on Huawei <strong>in</strong> May 2020, impair<strong>in</strong>g its likely<br />

future capabilities, <strong>the</strong> UK announced it would phase out all Huawei equipment by 2027 ( Dowden<br />

2020). UK <strong>in</strong>telligence agencies had for several years scrut<strong>in</strong>ised Huawei, which allowed full<br />

exam<strong>in</strong>ation of its hardware <strong>and</strong> software products by local security experts at a jo<strong>in</strong>tly- managed<br />

cybersecurity evaluation centre with an <strong>in</strong>dependent Oversight Board, <strong>the</strong> Huawei Cyber Security<br />

Evaluation Centre. While <strong>the</strong> centre had reported technical issues of concern <strong>in</strong> Huawei’s<br />

eng<strong>in</strong>eer<strong>in</strong>g processes, it did not f<strong>in</strong>d <strong>the</strong>se were <strong>the</strong> result of Ch<strong>in</strong>ese state <strong>in</strong>terference (Soo/<br />

Zhang 2020). <strong>The</strong> UK National Cyber Security Centre (NCSC) had recommended <strong>in</strong> early 2020<br />

that limits should be placed on “high risk vendors” <strong>in</strong> telecommunications networks <strong>and</strong> that<br />

equipment from such vendors should only be used when a specific risk mitigation strategy is <strong>in</strong><br />

place supervised by <strong>the</strong> NCSC. A risk management strategy had been <strong>in</strong> place between NCSC<br />

<strong>and</strong> Huawei s<strong>in</strong>ce 2010. <strong>The</strong> Centre issued a report after <strong>the</strong> <strong>in</strong>troduction of <strong>the</strong> May 2020 US<br />

sanctions <strong>in</strong> which it noted that its updated security advice on Huawei was driven by <strong>the</strong> US<br />

sanctions which <strong>in</strong>creased caused <strong>the</strong> <strong>in</strong>creased risk to UK networks due to <strong>the</strong> uncerta<strong>in</strong>ty of<br />

future supply <strong>in</strong>clud<strong>in</strong>g supplies of equipment to <strong>the</strong> Huawei Cyber Security Evaluation Centre,<br />

an important component of <strong>the</strong> UK’s risk management regime (NCSC 2020). <strong>The</strong> NCSC fur<strong>the</strong>r<br />

noted that <strong>the</strong> immediate exclusion of Huawei would generate new resilience <strong>and</strong> security<br />

risks for <strong>the</strong> UK’s networks by reduc<strong>in</strong>g competition to two providers <strong>and</strong> <strong>the</strong>refore ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g<br />

current Huawei equipment subject to risk mitigation measures was recommended <strong>in</strong> <strong>the</strong> transition<br />

period. This attribution of <strong>in</strong>creased risk due to <strong>the</strong> US sanctions had little impact on <strong>the</strong><br />

popular discourse on Huawei. Indeed, Huawei has established similar “cyber security <strong>and</strong> transparency<br />

centres” <strong>in</strong> several countries <strong>in</strong>clud<strong>in</strong>g Belgium <strong>and</strong> Germany, although <strong>the</strong> European<br />

narrative surround<strong>in</strong>g Huawei rema<strong>in</strong>s centred on geopolitics ra<strong>the</strong>r than eng<strong>in</strong>eer<strong>in</strong>g.<br />

Experts <strong>in</strong>terviewed for this research noted that countries of Central <strong>and</strong> Eastern Europe <strong>in</strong><br />

particular, had <strong>the</strong> need for Ch<strong>in</strong>ese technology <strong>and</strong> <strong>in</strong>vestment (<strong>and</strong> f<strong>in</strong>ance) but had a lack<br />

of engagement <strong>and</strong> underst<strong>and</strong><strong>in</strong>g of Ch<strong>in</strong>a, which tended to cloud views about firms such as<br />

Huawei with an emotive reaction. In o<strong>the</strong>r words, as more than one <strong>in</strong>terviewee stated, Ch<strong>in</strong>a is<br />

perceived as a bad actor. It is often conflated with Russia, a trend accentuated s<strong>in</strong>ce <strong>the</strong> Russian<br />

<strong>in</strong>vasion of Ukra<strong>in</strong>e. Cooperation with Ch<strong>in</strong>a is commonly emotionally <strong>in</strong>terpreted as a slap <strong>in</strong><br />

<strong>the</strong> face for European liberal democratic values, ra<strong>the</strong>r like <strong>the</strong> US <strong>in</strong>terprets <strong>the</strong> world accord<strong>in</strong>g<br />

to its own perceived (<strong>and</strong> often performative ra<strong>the</strong>r than consistent) values. In an absence<br />

of trust, some countries have developed <strong>in</strong>stitutional capacities for risk management, such as<br />

Germany, <strong>and</strong> yet <strong>in</strong>terviewees believed even Pol<strong>and</strong>, with relatively strong <strong>in</strong>stitutional capacity,<br />

may not have enough regulatory capabilities to manage <strong>the</strong> new technological risks, let alone<br />

o<strong>the</strong>r smaller states. <strong>The</strong> role of <strong>the</strong> <strong>EU</strong> at a regional level <strong>in</strong> Europe is <strong>the</strong>refore critical.<br />

Huawei representatives <strong>the</strong>mselves claim <strong>the</strong>ir firm makes a critical contribution to <strong>the</strong> emerg<strong>in</strong>g<br />

economies of Europe, not<strong>in</strong>g for example its work to supplement 4G networks operat<strong>in</strong>g <strong>in</strong><br />

Ukra<strong>in</strong>e even dur<strong>in</strong>g <strong>the</strong> Russian <strong>in</strong>vasion, so that people could stay <strong>in</strong> communication with<br />

each o<strong>the</strong>r while shelter<strong>in</strong>g <strong>in</strong> city metro networks <strong>and</strong> o<strong>the</strong>r challeng<strong>in</strong>g locations. Despite <strong>the</strong><br />

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David Morris<br />

way <strong>the</strong> firm is depicted <strong>in</strong> <strong>the</strong> English language media, as a security threat, thief of <strong>in</strong>tellectual<br />

property <strong>and</strong> suspicious arm of <strong>the</strong> Ch<strong>in</strong>ese state, <strong>the</strong> Huawei public relations team <strong>in</strong> Europe<br />

confidently state that four out of five media stories <strong>in</strong> o<strong>the</strong>r European languages are positive,<br />

with <strong>the</strong> one <strong>in</strong> five represent<strong>in</strong>g those stories sourced from English language media.<br />

<strong>The</strong> firm is diversify<strong>in</strong>g away from narrow reliance on manufactur<strong>in</strong>g equipment, deepen<strong>in</strong>g<br />

<strong>and</strong> broaden<strong>in</strong>g its <strong>in</strong>vestment-<strong>in</strong>tensive research <strong>and</strong> development efforts <strong>in</strong>to new areas of<br />

Fourth Industrial Revolution bus<strong>in</strong>ess <strong>in</strong>clud<strong>in</strong>g cloud comput<strong>in</strong>g, assist<strong>in</strong>g firms <strong>and</strong> cities to<br />

digitalize, improv<strong>in</strong>g efficiency of renewable energy systems <strong>and</strong> provid<strong>in</strong>g <strong>the</strong> digital capabilities<br />

for auto nomous vehicles. Despite <strong>the</strong> hit to its bottom-l<strong>in</strong>e profit, Huawei <strong>in</strong>creased research<br />

<strong>and</strong> develop ment spend<strong>in</strong>g <strong>in</strong> 2021 to CNY142.7 billion. Huawei’s Rotat<strong>in</strong>g Chairman, Ken Hu,<br />

told Huawei’s 2022 Global Analyst Summit that <strong>the</strong> firm rema<strong>in</strong>ed <strong>the</strong> world’s lead<strong>in</strong>g provider of<br />

connectivity, with over 20,000 global partners, 2.6 million developers work<strong>in</strong>g with its cloud ecosystem<br />

<strong>and</strong> 6,000 new applications already launched <strong>in</strong> <strong>the</strong> Huawei cloud marketplace. Huawei<br />

is mak<strong>in</strong>g ambitious claims to be reduc<strong>in</strong>g carbon <strong>in</strong>tensity each year. Hu po<strong>in</strong>ted to Huawei’s<br />

role <strong>in</strong> <strong>the</strong> world’s largest renewable energy project at Q<strong>in</strong>ghai, <strong>the</strong> world’s largest green energy<br />

storage project <strong>in</strong> <strong>the</strong> Red Sea, reduction <strong>in</strong> energy use of its global data centres, a 30 percent<br />

<strong>in</strong>crease <strong>in</strong> solar power share for its services <strong>in</strong> Pol<strong>and</strong> <strong>and</strong> reduced energy usage by 30 per<br />

cent by its green wireless sites <strong>in</strong> Indonesia. Solar energy is now supplement<strong>in</strong>g Huawei’s manufactur<strong>in</strong>g<br />

operations <strong>in</strong> Dongguan, with an aspiration to move ultimately to fully clean energy<br />

( Huawei 2022). Electricity use will grow exponentially with <strong>the</strong> rollout of digitalization <strong>and</strong> to<br />

meet its ambitious goals, Huawei will need that electricity to be renewable, with its spokespeople<br />

well aware that as a lead<strong>in</strong>g Fortune 500 company Huawei will be expected to lead <strong>the</strong><br />

green transition. At a Darw<strong>in</strong>’s Circle event <strong>in</strong> Vienna, Huawei Austria presented on a Tech for All<br />

biodiversity project <strong>in</strong> <strong>the</strong> Neusiedler See-Seew<strong>in</strong>kel, <strong>in</strong> which Huawei is us<strong>in</strong>g onl<strong>in</strong>e <strong>and</strong> offl<strong>in</strong>e<br />

sensors to track amphibian <strong>and</strong> bird life <strong>and</strong> collect<strong>in</strong>g huge data sets to monitor <strong>and</strong> protect<br />

endangered species. This is part of a series of similar projects, <strong>in</strong>clud<strong>in</strong>g salmon fertility <strong>in</strong> Norway<br />

<strong>and</strong> Pol<strong>and</strong>’s large national park on its border with Belarus, <strong>in</strong> which Huawei is seek<strong>in</strong>g to<br />

demonstrate through community projects that its technology can be a force for good.<br />

Huawei’s Wang Zhiq<strong>in</strong> told <strong>the</strong> 2022 Global Analyst Summit that Ch<strong>in</strong>a leads <strong>the</strong> world <strong>in</strong> 5G<br />

deployment at scale, with 1.4 million 5G base stations <strong>and</strong> ano<strong>the</strong>r 600,000 to be built <strong>in</strong> 2022,<br />

more than half supplied by Huawei, serv<strong>in</strong>g 1 billion users. He noted that such scale will allow<br />

a green <strong>and</strong> <strong>in</strong>telligent network to roll out applications beyond m<strong>in</strong><strong>in</strong>g, energy <strong>and</strong> ports <strong>and</strong><br />

<strong>in</strong>to every <strong>in</strong>dustry. Huawei’s Gan B<strong>in</strong> argued <strong>the</strong> 5G capabilities Huawei is provid<strong>in</strong>g will ensure<br />

telecommunications is no longer <strong>the</strong> bottleneck between <strong>the</strong> tech advances of big data, artificial<br />

<strong>in</strong>telligence <strong>and</strong> <strong>the</strong> cloud merg<strong>in</strong>g, to massively improve efficiency <strong>and</strong> to reduce energy consumption<br />

across value cha<strong>in</strong>s. Huawei’s Jimmy Gu said this Fourth Industrial Revolution empowered<br />

by 5G reliability, stability <strong>and</strong> capacity will mean more flexible manufactur<strong>in</strong>g, more<br />

precise quality management <strong>and</strong> more targeted logistics.<br />

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<strong>The</strong> Huawei battleground: A critical case of political risk <strong>in</strong> <strong>the</strong> new global power contest<br />

Leav<strong>in</strong>g aside Huawei’s sophisticated attempts at public relations, it appears likely through its<br />

pursuit of <strong>in</strong>novation <strong>in</strong> products <strong>and</strong> services <strong>and</strong> its unique culture to be able to survive <strong>and</strong><br />

adapt <strong>in</strong> a new, even more challeng<strong>in</strong>g geopolitical environment. Huawei has thus become central<br />

to <strong>the</strong> debate <strong>in</strong> particular <strong>in</strong> <strong>the</strong> US <strong>and</strong> its allies but also <strong>in</strong> an <strong>in</strong>creas<strong>in</strong>g number of countries<br />

that are <strong>in</strong>terdependent with both <strong>the</strong> US <strong>and</strong> Ch<strong>in</strong>a, about cyber opportunities <strong>and</strong> risks. To be<br />

sure, <strong>the</strong> risks are heightened as <strong>the</strong> new high-speed connectivity capabilities of 5G will generate<br />

an exponentially greater number of potential vulnerabilities across <strong>the</strong> anticipated Internet<br />

of Th<strong>in</strong>gs, with a <strong>the</strong>oretical threat of weaponization at any one of those po<strong>in</strong>ts of vulnerability.<br />

3 <strong>The</strong> problem of assess<strong>in</strong>g cyber <strong>and</strong> o<strong>the</strong>r risks<br />

Each actor will make a different assessment of <strong>the</strong> risks of do<strong>in</strong>g bus<strong>in</strong>ess with Huawei. <strong>The</strong>re<br />

is no objective, proportionate scale for risk assessment that will be appropriate for all actors.<br />

Cyber risk assessment is <strong>in</strong>herently subjective, based up <strong>the</strong> norms <strong>and</strong> narratives that frame <strong>the</strong><br />

worldview of <strong>the</strong> assessor (Creemers 2022). To be sure, <strong>the</strong> deepen<strong>in</strong>g, broaden<strong>in</strong>g <strong>and</strong> transformation<br />

of <strong>the</strong> digital economy is enlarg<strong>in</strong>g <strong>the</strong> objective risk environment, creat<strong>in</strong>g exponentially<br />

more po<strong>in</strong>ts of potential risk, <strong>and</strong> we might reasonably expect that state actors are actively<br />

explor<strong>in</strong>g <strong>the</strong>se vulnerabilities to leverage political (or geopolitical) advantage, as well as o<strong>the</strong>r<br />

actors such as crim<strong>in</strong>al organisations <strong>and</strong> o<strong>the</strong>r k<strong>in</strong>ds of hackers. State actors whose national<br />

security is <strong>in</strong>tegrated with <strong>the</strong> US may certa<strong>in</strong>ly assess that Huawei represents more risks than<br />

benefits. <strong>The</strong> UK is one of <strong>the</strong> closest allies of <strong>the</strong> US <strong>and</strong> is phas<strong>in</strong>g out Huawei equipment from<br />

its 5G networks by 2027, although primarily as discussed above because of <strong>the</strong> risks that US<br />

sanctions on Huawei will threaten future supplies <strong>and</strong> reduce its established capabilities for risk<br />

mitigation. Hungary represents <strong>the</strong> o<strong>the</strong>r end of <strong>the</strong> spectrum, also a NATO ally, but prioritis<strong>in</strong>g<br />

<strong>the</strong> economic benefits from attract<strong>in</strong>g <strong>and</strong> reta<strong>in</strong><strong>in</strong>g Huawei as not only a provider of equipment<br />

<strong>and</strong> services, but also for its potential to fur<strong>the</strong>r <strong>in</strong>vest <strong>in</strong> mak<strong>in</strong>g Hungary a logistics hub for<br />

related technologies. Hungarians tend to expect all actors to engage <strong>in</strong> espionage <strong>and</strong> to represent<br />

potential security risks, no doubt because of that nation’s troubled history. In between <strong>the</strong><br />

UK <strong>and</strong> Hungary are a broad range of perspectives across Europe.<br />

<strong>The</strong> risks that are identified by stakeholders <strong>and</strong> <strong>in</strong> <strong>the</strong> literature <strong>in</strong>clude national security<br />

risks as well as broader risks to <strong>the</strong> economic <strong>in</strong>terdependence that has been <strong>the</strong> hallmark<br />

of globalisation. <strong>The</strong> most serious security risks are claims that Huawei could be used as a<br />

vector for cyber-attacks on critical <strong>in</strong>frastructure, perhaps only likely <strong>in</strong> worst-case scenarios of<br />

major power confrontation, but of concern none<strong>the</strong>less. <strong>The</strong> more common fears of espionage<br />

represent qualitatively different, although also serious, security questions. Even <strong>in</strong> normal conditions<br />

of geopolitical competition, states can be expected to engage <strong>in</strong> espionage, <strong>in</strong>clud<strong>in</strong>g<br />

cyber-espionage. Given <strong>the</strong> well-established evidence of electronic espionage by <strong>the</strong> US <strong>and</strong><br />

its “Five Eyes” partners, <strong>in</strong>clud<strong>in</strong>g with <strong>and</strong> without <strong>the</strong> knowledge <strong>and</strong> cooperation of telecommunications<br />

firms (Snowden 2019; Biddle 2020), it would appear highly likely that Ch<strong>in</strong>a also<br />

utilises all available means to conduct electronic espionage, whe<strong>the</strong>r with or without Huawei’s<br />

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David Morris<br />

knowledge or cooperation. Because of Ch<strong>in</strong>a’s less transparent political <strong>and</strong> legal system, we<br />

may never see evidence of such, unless it can be produced by Ch<strong>in</strong>a’s strategic rivals. Fur<strong>the</strong>r,<br />

Huawei’s “smart city” <strong>and</strong> o<strong>the</strong>r partnerships <strong>in</strong> <strong>the</strong> develop<strong>in</strong>g world, often <strong>in</strong> partnership with<br />

Ch<strong>in</strong>ese government organisations, generate claims that Ch<strong>in</strong>a is export<strong>in</strong>g its “surveillance<br />

state” model. Overall, <strong>the</strong> paradox that we cannot know to what extent such claims are geopolitically<br />

<strong>in</strong>spired requires actors to take <strong>the</strong>se security risks seriously.<br />

<strong>The</strong> security risks rest upon <strong>the</strong> <strong>the</strong>oretical proposition that Ch<strong>in</strong>ese-sourced technology underp<strong>in</strong>n<strong>in</strong>g<br />

<strong>in</strong>ternational communications systems could be weaponised by <strong>the</strong> Ch<strong>in</strong>ese state. <strong>The</strong><br />

US <strong>and</strong> its allies, amongst o<strong>the</strong>rs, distrust <strong>the</strong> authoritarian Ch<strong>in</strong>ese party state <strong>and</strong> fear its grow<strong>in</strong>g<br />

technological <strong>and</strong> military capabilities. Despite be<strong>in</strong>g a private firm, it is feared that Huawei<br />

could be co-opted to serve <strong>the</strong> national security <strong>in</strong>terests of <strong>the</strong> Ch<strong>in</strong>ese government <strong>and</strong> forced<br />

to facilitate espionage or cyber-attacks (Gild<strong>in</strong>g 2020). Article 7 of Ch<strong>in</strong>a’s National Intelligence<br />

Law of 2017 requires Ch<strong>in</strong>ese firms <strong>and</strong> employees to cooperate with national <strong>in</strong>telligence agencies<br />

lawfully carry<strong>in</strong>g out <strong>the</strong>ir work (Girard 2019). That <strong>the</strong>se are similar to powers that <strong>the</strong> US<br />

utilises is not <strong>in</strong> question, but trust <strong>in</strong> Ch<strong>in</strong>a is <strong>the</strong> question.<br />

Russia has demonstrably used cyber-attacks as a matter of policy, <strong>in</strong> peacetime such as its welldocumented<br />

underm<strong>in</strong><strong>in</strong>g of <strong>the</strong> 2016 US presidential election, <strong>in</strong> wartime such as its attacks<br />

on Ukra<strong>in</strong>e <strong>in</strong>frastructure <strong>and</strong> aga<strong>in</strong>st o<strong>the</strong>r targets as punishments or threats (Orenste<strong>in</strong> 2022).<br />

Russia has no equivalent of Huawei, which underl<strong>in</strong>es <strong>the</strong> supplier-bl<strong>in</strong>d nature of cyber risks, but<br />

also illustrates <strong>the</strong> risks of how major powers can act.<br />

<strong>The</strong>re are o<strong>the</strong>r risks raised by <strong>the</strong> Huawei case, with effects that arguably underm<strong>in</strong>e <strong>in</strong>ternational<br />

cooperation <strong>and</strong> complex <strong>in</strong>terdependence, which could have spillover effects as serious<br />

as technological decoupl<strong>in</strong>g <strong>in</strong>to rival economic zones that spell <strong>the</strong> end of globalisation as we<br />

know it. <strong>The</strong> geopolitical campaign aga<strong>in</strong>st Huawei <strong>and</strong> o<strong>the</strong>r Ch<strong>in</strong>ese technology firms could be<br />

considered likely to weaken efforts to develop function<strong>in</strong>g global rules, norms <strong>and</strong> st<strong>and</strong>ards for<br />

<strong>the</strong> digital economy. Fur<strong>the</strong>r, <strong>the</strong> potential demarcation of <strong>the</strong> digital economy <strong>in</strong>to US-led <strong>and</strong><br />

Ch<strong>in</strong>a-led spheres would tend to streng<strong>the</strong>n <strong>the</strong> foreign <strong>in</strong>fluence of those major powers over<br />

o<strong>the</strong>r states with<strong>in</strong> <strong>the</strong>ir spheres, <strong>in</strong>clud<strong>in</strong>g not only favour<strong>in</strong>g firms orig<strong>in</strong>at<strong>in</strong>g <strong>in</strong> each major<br />

power but <strong>in</strong>creas<strong>in</strong>g <strong>the</strong> likelihood states may be <strong>in</strong>fluenced to support <strong>the</strong>ir major power partner<br />

on o<strong>the</strong>r matters from <strong>in</strong>ternational rule-mak<strong>in</strong>g to target<strong>in</strong>g firms (or even <strong>in</strong>dividuals represent<strong>in</strong>g<br />

firms) with sanctions. Regardless of <strong>the</strong> merits of domestic security concerns, <strong>the</strong> Huawei<br />

case represents a stark example of <strong>the</strong> risk of economic coercion by a major power target<strong>in</strong>g a<br />

firm <strong>and</strong> wield<strong>in</strong>g a wide range of state measures to constrict that firm <strong>in</strong> <strong>in</strong>ternational markets,<br />

a notable political risk <strong>in</strong> this new era of geopolitical tension. <strong>The</strong> implications of <strong>the</strong> actions<br />

aga<strong>in</strong>st Huawei transmit throughout global value cha<strong>in</strong>s, with all <strong>in</strong>ternational firms that supply<br />

Huawei impacted by US executive <strong>and</strong> legislative restrictions. Decoupled supply cha<strong>in</strong>s, even if<br />

considered necessary from a national security st<strong>and</strong>po<strong>in</strong>t, also risk significant adjustment costs<br />

<strong>and</strong> long-term <strong>in</strong>efficiencies of duplication <strong>and</strong> higher cost suppliers than o<strong>the</strong>rwise available <strong>in</strong><br />

an open trad<strong>in</strong>g environment.<br />

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<strong>The</strong> Huawei battleground: A critical case of political risk <strong>in</strong> <strong>the</strong> new global power contest<br />

4 A European/Eurasia governance alternative?<br />

Where does all of this leave Europe <strong>and</strong> Eurasia? <strong>The</strong> security of 5G <strong>and</strong> future generation networks<br />

will become even more important for <strong>the</strong> connected technologies of <strong>the</strong> future, with critical<br />

<strong>in</strong>frastructure connected to such networks as well as sophisticated European products <strong>and</strong><br />

services across global value cha<strong>in</strong>s. Indeed, risks will not only be generated by major power<br />

geopolitical contest, but governments <strong>and</strong> firms will also need to protect aga<strong>in</strong>st cyber-attack<br />

from o<strong>the</strong>r states, crim<strong>in</strong>al organisations, <strong>and</strong> rogue <strong>in</strong>dividuals. Whe<strong>the</strong>r Europe develops rules<br />

<strong>and</strong> norms that are globally <strong>in</strong>tegrated or whe<strong>the</strong>r it must decouple from one or more technology<br />

realm is one question. Whe<strong>the</strong>r Huawei must be excluded as a vector of risk or alternatively<br />

enlisted as a partner <strong>in</strong> risk mitigation, <strong>in</strong> a European-governed system of risk management, may<br />

depend upon normative perspective.<br />

An <strong>EU</strong> coord<strong>in</strong>ated risk assessment noted that <strong>the</strong> technological change represented by 5G<br />

will <strong>in</strong>crease <strong>the</strong> overall attack surface for potential cyber threats across networks <strong>and</strong> <strong>in</strong> software<br />

development <strong>and</strong> update processes, as well as <strong>in</strong> relation to reliance on network operators<br />

<strong>and</strong> <strong>the</strong>ir role <strong>in</strong> supply cha<strong>in</strong>s. Without nam<strong>in</strong>g Huawei, it drew particular attention to <strong>the</strong><br />

importance of <strong>the</strong> <strong>in</strong>dividual risk profile of suppliers <strong>and</strong> <strong>the</strong> <strong>in</strong>creased risk of dependency on a<br />

s<strong>in</strong>gle supplier. <strong>The</strong> <strong>EU</strong> is develop<strong>in</strong>g <strong>and</strong> deploy<strong>in</strong>g high system security strategies for cyberrisk<br />

assessment <strong>and</strong> mitigation <strong>in</strong> an <strong>in</strong>creas<strong>in</strong>gly complex of global supply cha<strong>in</strong>s, <strong>in</strong>volv<strong>in</strong>g<br />

thous<strong>and</strong>s of actors <strong>and</strong> sources of software code. <strong>The</strong> <strong>EU</strong> toolbox of risk mitigat<strong>in</strong>g measures<br />

<strong>in</strong>cludes streng<strong>the</strong>ned regulatory powers <strong>and</strong> technical improvements to improve security of 5G<br />

networks <strong>and</strong> equipment, <strong>in</strong>clud<strong>in</strong>g restrict<strong>in</strong>g “high risk” suppliers (understood as orig<strong>in</strong>at<strong>in</strong>g <strong>in</strong><br />

countries without democratic checks <strong>and</strong> balances) from provid<strong>in</strong>g core network assets <strong>and</strong> diversification<br />

of vendors to avoid dependency on one supplier. Fur<strong>the</strong>r, it recommends streng<strong>the</strong>n<strong>in</strong>g<br />

local <strong>EU</strong> capacities to supply 5G <strong>and</strong> post-5G technologies (European Commission 2020).<br />

Industry experts warned <strong>in</strong> <strong>the</strong> <strong>in</strong>terviews for this research that <strong>the</strong>re is however a danger <strong>in</strong><br />

Europe, unlike <strong>the</strong> US, that telecommunications providers have neglected <strong>the</strong>ir capabilities to<br />

manage <strong>the</strong>ir own networks, often outsourc<strong>in</strong>g to equipment vendors, <strong>in</strong>clud<strong>in</strong>g Huawei. Rely<strong>in</strong>g<br />

on Huawei to monitor cyber-risks that some claim orig<strong>in</strong>ate from or through Huawei would<br />

appear to be unwise. Governments tak<strong>in</strong>g a risk management approach need to require service<br />

providers to ma<strong>in</strong>ta<strong>in</strong> full service technical expertise <strong>and</strong> comprehensive security capabilities,<br />

<strong>and</strong> to ensure <strong>the</strong>y ma<strong>in</strong>ta<strong>in</strong> reliable monitor<strong>in</strong>g capabilities, or to develop automated solutions<br />

(Hubert 2020). While many supply cha<strong>in</strong>s <strong>in</strong> technology, as <strong>in</strong> o<strong>the</strong>r sectors, orig<strong>in</strong>ate <strong>in</strong> Ch<strong>in</strong>a,<br />

Huawei has moved to manufacture 5G network equipment <strong>in</strong> France for <strong>the</strong> European market<br />

<strong>and</strong> all of its chipset security is conducted <strong>in</strong> F<strong>in</strong>l<strong>and</strong> (Huawei 2020), which mitigates risks.<br />

<strong>The</strong> Huawei case exposes a critical gap <strong>in</strong> global governance. Inadequate rules, norms, st<strong>and</strong>ards<br />

<strong>and</strong> <strong>in</strong>stitutions exist to manage risks of globally <strong>in</strong>terconnected technology. In <strong>the</strong> absence<br />

of rules, norms, st<strong>and</strong>ards <strong>and</strong> enforcement, technologies generat<strong>in</strong>g risks have developed<br />

ahead of technical capabilities to manage those risks. While some technical experts claim<br />

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<strong>the</strong> complexity of telecommunications technology renders it impossible to guarantee aga<strong>in</strong>st<br />

malicious code or backdoors <strong>in</strong> equipment (Lysne 2018; Chang 2020), nations will assess how<br />

to engage with Ch<strong>in</strong>a differently. <strong>The</strong> US <strong>and</strong> its closest allies may underst<strong>and</strong>ably fear <strong>the</strong> rise<br />

of Ch<strong>in</strong>a, but it rema<strong>in</strong>s an open question whe<strong>the</strong>r Europe as a whole will seek to decouple from<br />

Ch<strong>in</strong>a or to f<strong>in</strong>d a risk management solution to prosper from <strong>the</strong> next phase of globalisation. If<br />

<strong>the</strong> latter, <strong>the</strong> <strong>EU</strong> may already have a model for risk management <strong>in</strong> its highly developed set of<br />

regional rules <strong>and</strong> st<strong>and</strong>ards for <strong>the</strong> digital economy, <strong>in</strong>clud<strong>in</strong>g its comprehensive Cybersecurity<br />

Act, General Data Protection Regulation <strong>and</strong> Directive on Security <strong>and</strong> Information Systems.<br />

Technology experts <strong>in</strong>terviewed for this research were mostly of <strong>the</strong> view that cyber-risk management<br />

should take a “zero-trust” approach that is bl<strong>in</strong>d to suppliers <strong>and</strong> that applies layers of<br />

monitor<strong>in</strong>g <strong>and</strong> test<strong>in</strong>g for vulnerabilities, as threats could actually come from anywhere – not<br />

just one particular geopolitical competitor – at any time. It was considered by <strong>in</strong>dustry <strong>in</strong>siders<br />

that risk management should be developed accord<strong>in</strong>g to <strong>in</strong>ternationally agreed rules, norms <strong>and</strong><br />

st<strong>and</strong>ards, as well as <strong>in</strong>stitutions for enforcement. <strong>The</strong> risk of malicious state action has not<br />

prevented <strong>the</strong> <strong>in</strong>ternational community from develop<strong>in</strong>g – <strong>and</strong> largely abid<strong>in</strong>g by – rules, norms,<br />

st<strong>and</strong>ards <strong>and</strong> <strong>in</strong>stitutions <strong>in</strong> numerous similarly complex areas of strategic importance, such<br />

as nuclear technology for peaceful use, food safety or aviation. <strong>The</strong> lack of cooperative global<br />

dialogue about governance options for emerg<strong>in</strong>g technologies is <strong>the</strong>refore remarkable.<br />

5 Conclusion<br />

<strong>The</strong>re has traditionally been very little cross-fertilisation between bus<strong>in</strong>ess literature on political<br />

risk <strong>and</strong> <strong>in</strong>ternational relations literature on <strong>in</strong>terdependence (Fägersten 2015), yet this discussion<br />

demonstrates that risks for governments, firms <strong>and</strong> o<strong>the</strong>r actors <strong>in</strong> <strong>the</strong> Huawei case are<br />

entirely bound up <strong>in</strong> questions of complex <strong>in</strong>terdependence <strong>and</strong> may require new approaches to<br />

risk management at global, regional <strong>and</strong> national levels.<br />

<strong>The</strong> Huawei battleground is not simply about <strong>the</strong> rise of one firm from Ch<strong>in</strong>a to threaten US<br />

supremacy or generat<strong>in</strong>g cyber-risks. Huawei is a proxy for fear of Ch<strong>in</strong>a itself, its likely future<br />

capabilities <strong>and</strong> possible <strong>in</strong>tentions. Whe<strong>the</strong>r Ch<strong>in</strong>a acts accord<strong>in</strong>g to high risk threat scenarios<br />

may be related to <strong>the</strong> state of <strong>the</strong> <strong>in</strong>ternational system itself <strong>and</strong> whe<strong>the</strong>r it descends <strong>in</strong>to conflict<br />

or whe<strong>the</strong>r <strong>in</strong>ternational cooperation can be ma<strong>in</strong>ta<strong>in</strong>ed.<br />

<strong>The</strong> US <strong>and</strong> some of its allies appear to so deeply distrust Ch<strong>in</strong>a that <strong>the</strong>y are unwill<strong>in</strong>g to<br />

attempt to construct new <strong>in</strong>ternational rules, norms, st<strong>and</strong>ards <strong>and</strong> <strong>in</strong>stitutions to govern a new,<br />

<strong>in</strong>ter dependent digital economy. <strong>The</strong> alternative, a world of decoupled <strong>and</strong> rival technological<br />

systems, may deepen distrust <strong>and</strong> re<strong>in</strong>force <strong>the</strong> k<strong>in</strong>d of hostile state action we fear. Of course,<br />

if <strong>the</strong> worst-case scenarios prove to be correct, we could be headed <strong>in</strong> that direction anyway.<br />

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<strong>The</strong> Huawei battleground: A critical case of political risk <strong>in</strong> <strong>the</strong> new global power contest<br />

<strong>The</strong> Huawei battleground is <strong>the</strong>refore more than simply a problem for <strong>in</strong>ternational bus<strong>in</strong>ess<br />

but represents a crisis of <strong>in</strong>terdependence <strong>in</strong> <strong>the</strong> <strong>in</strong>ternational system. For Europe <strong>and</strong> its <strong>in</strong>terdependence<br />

across Eurasia, it is a central test whe<strong>the</strong>r it will be possible to susta<strong>in</strong> <strong>and</strong> build<br />

new processes for engagement, co-existence, norms, verification <strong>and</strong> enforcement for susta<strong>in</strong>able<br />

new value cha<strong>in</strong>s <strong>and</strong> <strong>in</strong>deed to ma<strong>in</strong>ta<strong>in</strong> peace <strong>and</strong> security.<br />

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org/analysis/watch<strong>in</strong>g-huaweis-safe-cities<br />

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Hubert, B. (2020): 5G: <strong>The</strong> outsourced elephant <strong>in</strong> <strong>the</strong> room. In: Berthub.eu. https://berthub.eu/<br />

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Keohane, R./Nye, J. (2012): Power <strong>and</strong> <strong>in</strong>terdependence. Glenview, IL: Longman, Pearson.<br />

Lim, D./Ferguson, V. (2019): Huawei <strong>and</strong> <strong>the</strong> decoupl<strong>in</strong>g dilemma. In: <strong>The</strong> Interpreter. https://<br />

www.lowy<strong>in</strong>stitute.org/<strong>the</strong>-<strong>in</strong>terpreter/huawei-<strong>and</strong>-decoupl<strong>in</strong>g-dilemma<br />

Lysne, O. (2018): <strong>The</strong> Huawei <strong>and</strong> Snowden Questions. Can Electronic Equipment from Untrusted<br />

Vendors be Verified? Can an Untrusted Vendor Build Trust <strong>in</strong>to Electronic Equipment?. Simula<br />

Spr<strong>in</strong>gerBriefs on Comput<strong>in</strong>g, Volume 4. Cham: Spr<strong>in</strong>ger Open. https://l<strong>in</strong>k.spr<strong>in</strong>ger.com/<br />

book/10.1007/978-3-319-74950-1<br />

McMaster, H. (2020): Battlegrounds: <strong>the</strong> fight to defend <strong>the</strong> free world. New York, NY: Harper.<br />

Morris, D. (2021): <strong>The</strong> Huawei Paradox: Future Tech <strong>Risks</strong> <strong>and</strong> Unravell<strong>in</strong>g Interdependence.<br />

In: Contemporary Ch<strong>in</strong>ese <strong>Political</strong> Economy <strong>and</strong> Strategic Relations: An International Journal,<br />

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Ch<strong>in</strong>ese telecoms giant. In: South Ch<strong>in</strong>a Morn<strong>in</strong>g Post, January 28, 2019. https://today.l<strong>in</strong>e.me/<br />

hk/v2/article/8W1D8V<br />

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<strong>in</strong>dex.html<br />

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Albert Hayrapetyan / Susanna Aghajanyan<br />

<strong>The</strong> impact of sanctions on Russia<br />

<strong>and</strong> <strong>the</strong> consequent Russian bus<strong>in</strong>ess<br />

relocation to Armenia<br />

Abstract<br />

<strong>The</strong> Armenian <strong>and</strong> Russian economies are tightly knitted <strong>and</strong> <strong>the</strong> sanctions<br />

­imposed on Russia will have a significant short- <strong>and</strong> long-term impact on <strong>the</strong><br />

economic life of Armenia. In <strong>the</strong> article, we discuss how <strong>the</strong> companies that<br />

used to operate <strong>in</strong> Russia look for new places to relocate <strong>the</strong>mselves <strong>and</strong> to<br />

develop <strong>the</strong>ir bus<strong>in</strong>ess. Bus<strong>in</strong>ess relocation may be required for various reasons,<br />

­<strong>in</strong>clud<strong>in</strong>g ­establish<strong>in</strong>g new connections, f<strong>in</strong>d<strong>in</strong>g a more profitable tax system,<br />

convenience <strong>and</strong> access to technology <strong>and</strong> cheap labor. How ever, chang<strong>in</strong>g<br />

<strong>the</strong> location has become one way of how to avoid <strong>the</strong> pressure of sanctions<br />

<strong>and</strong> ­restrictions for Russian organizations. <strong>The</strong> first wave of ­relocations<br />

­encompassed companies from <strong>the</strong> high-tech <strong>and</strong> service sectors. Even though<br />

<strong>the</strong>y have benefited from tax exemptions <strong>and</strong> deferments for <strong>the</strong> IT sector, <strong>the</strong>se<br />

companies have contributed to <strong>the</strong> improvement of economic activity as well as<br />

generated additional consumption <strong>and</strong> rent payments. Armenia has capitalized<br />

additional output <strong>and</strong> export <strong>in</strong>crease of some <strong>in</strong>dustries. However, <strong>the</strong> economic<br />

growth is not proportional. <strong>The</strong> impact of sanctions aga<strong>in</strong>st Russia has<br />

already been manifested <strong>in</strong> Armenia by <strong>the</strong> <strong>in</strong>stability of <strong>the</strong> exchange rate, <strong>the</strong><br />

significant <strong>in</strong>crease <strong>in</strong> prices, <strong>in</strong>tensified <strong>in</strong>flation pressure, etc. Indeed, difficult times await not<br />

only Russia, but also Armenia, as long as <strong>the</strong> latter cont<strong>in</strong>ues to be over-<strong>in</strong>tegrated <strong>in</strong>to <strong>the</strong><br />

­Russian economy which entails partly shar<strong>in</strong>g <strong>the</strong> burden of <strong>the</strong> consequences of <strong>the</strong> westimposed<br />

sanctions. Under <strong>the</strong> conditions of <strong>in</strong>creas<strong>in</strong>g economic turbulence, Armenia should<br />

fur<strong>the</strong>r diversify its policies <strong>and</strong> economy.<br />

Keywords: sanctions, impact, foreign companies, relocation.<br />

Albert Hayrapetyan<br />

Armenian StateUniversity of<br />

Economics, Yerevan<br />

Susanna Aghajanyan<br />

Armenian StateUniversity of<br />

Economics, Yerevan<br />

1 Introduction<br />

<strong>The</strong> political <strong>and</strong> economic arenas are undergo<strong>in</strong>g extensive, broad-based developments <strong>in</strong> <strong>the</strong><br />

twenty-first century. Globally, bus<strong>in</strong>esses have been impacted by <strong>the</strong> p<strong>and</strong>emic. <strong>The</strong> tumultuous<br />

environment compelled bus<strong>in</strong>esses to evaluate <strong>the</strong>ir strategy <strong>and</strong> adapt to <strong>the</strong> shift<strong>in</strong>g needs of<br />

customers, suppliers, <strong>and</strong> workers. In addition to address<strong>in</strong>g <strong>the</strong> crisis, bus<strong>in</strong>esses are focus<strong>in</strong>g<br />

on prepar<strong>in</strong>g for <strong>the</strong> post-p<strong>and</strong>emic scenario by tak<strong>in</strong>g lessons from <strong>the</strong> recent p<strong>and</strong>emic <strong>and</strong><br />

its effects on <strong>in</strong>ternational trade. <strong>The</strong> region’s top mult<strong>in</strong>ationals have started <strong>and</strong> are stepp<strong>in</strong>g<br />

up strategic <strong>in</strong>itiatives to build more resilient supply networks (Agadjanyan 2020). However, <strong>the</strong><br />

Russian-Ukra<strong>in</strong>ian confrontation <strong>and</strong> <strong>the</strong> result<strong>in</strong>g sanctions aga<strong>in</strong>st Russia have now ­become a<br />

new concern for bus<strong>in</strong>esses. Nearly all of <strong>the</strong> issues discussed at <strong>the</strong> <strong>in</strong>ception of <strong>the</strong> p<strong>and</strong>emic<br />

still exist: value cha<strong>in</strong>s are disrupted, logistics supplies are difficult to organize, raw materials<br />

<strong>and</strong> packag<strong>in</strong>g materials are <strong>in</strong> limited supply, prices are chang<strong>in</strong>g, etc. (Agadjanyan 2022).<br />

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­Never<strong>the</strong>less, despite <strong>the</strong> experience obta<strong>in</strong>ed <strong>in</strong> manag<strong>in</strong>g <strong>the</strong> aforementioned issues, <strong>the</strong> Russian<br />

market is becom<strong>in</strong>g relatively vulnerable <strong>in</strong> light of <strong>the</strong> current geopolitical <strong>and</strong> economic<br />

realities as major foreign corporations purposefully exit <strong>the</strong> Russian market. Sanctions alter<br />

actions of <strong>in</strong>vestors <strong>and</strong> foreign companies <strong>in</strong> <strong>the</strong> market. Today <strong>the</strong> situation <strong>in</strong> Russia is complicated.<br />

Despite <strong>the</strong> political nature of <strong>the</strong> sanctions, <strong>the</strong>y have a clear economic dimension. <strong>The</strong><br />

sanctions are renewed every m<strong>in</strong>ute <strong>and</strong> are becom<strong>in</strong>g more <strong>and</strong> more severe result<strong>in</strong>g <strong>in</strong> trade<br />

restrictions, a shortage of resources, <strong>and</strong> as a result, a number of bus<strong>in</strong>esses reject work<strong>in</strong>g with<br />

Russia or cease <strong>the</strong>ir operations. Western economic sanctions primarily target <strong>the</strong> country’s<br />

f<strong>in</strong>ancial system, energy companies <strong>and</strong> airl<strong>in</strong>es, transport system, advanced technologies <strong>and</strong><br />

o<strong>the</strong>r sectors with a variety of negative effects. In <strong>the</strong> medium term, <strong>the</strong> economic recession<br />

<strong>and</strong> <strong>the</strong> economic <strong>and</strong> technological isolation of <strong>the</strong> country curb <strong>the</strong> fur<strong>the</strong>r development of <strong>the</strong><br />

Russian economy, <strong>and</strong>, at <strong>the</strong> same time, put <strong>the</strong> major non-western economic partners under<br />

jeopardy of experienc<strong>in</strong>g <strong>the</strong> secondary effects of <strong>the</strong> sanctions.<br />

<strong>The</strong> <strong>in</strong>fluence of economic sanctions on <strong>the</strong> activity of foreign companies <strong>in</strong> <strong>the</strong> Russian market<br />

is complex <strong>and</strong> multi-level. Foreign bus<strong>in</strong>esses tackle problems <strong>in</strong>clud<strong>in</strong>g platform block<strong>in</strong>g, a<br />

drop <strong>in</strong> dem<strong>and</strong>, a rapid rise <strong>in</strong> purchas<strong>in</strong>g prices, etc.<br />

Russia faces a number of dead-ends under <strong>the</strong> <strong>in</strong>fluence of <strong>the</strong>se limitations. Foreign ­enterprises<br />

face more challenges than just sanctions that occurred because of <strong>the</strong> economy’s precipitous<br />

decl<strong>in</strong>e, retaliatory measures <strong>and</strong> reputational risks. Yet many <strong>in</strong>ternational companies are forced<br />

to wait for fur<strong>the</strong>r developments or f<strong>in</strong>d new solutions due to <strong>the</strong> uncerta<strong>in</strong> environment <strong>and</strong> <strong>the</strong><br />

necessity to protect assets as well as fulfill exist<strong>in</strong>g responsibilities <strong>and</strong> agreements. It means<br />

that uncerta<strong>in</strong>ty alters <strong>the</strong> pattern <strong>and</strong> volume of a company’s activity as foreign companies<br />

want to take full advantage of <strong>the</strong>ir ownership abroad. Decisions made by some mult<strong>in</strong>ational<br />

bus<strong>in</strong>esses, such as ceas<strong>in</strong>g operations <strong>in</strong> Russia <strong>and</strong> halt<strong>in</strong>g projects <strong>and</strong> <strong>in</strong>vestments, highlighted<br />

<strong>the</strong> necessity to assess <strong>the</strong> relocation opportunities. Exit is a sensible strategy, so companies<br />

look for alternate solutions to adapt to <strong>the</strong> dynamic environment, much like chameleons,<br />

which quickly change <strong>the</strong>ir appearance to match chang<strong>in</strong>g environmental conditions due to<br />

­<strong>in</strong>creased flexibility, <strong>in</strong>ternal competition, <strong>and</strong> o<strong>the</strong>r causes.<br />

<strong>The</strong> Eurasian Economic Union (E<strong>EU</strong>) member states <strong>in</strong>clud<strong>in</strong>g Armenia hosted numerous companies<br />

‘’emigrated’’ from Russia. <strong>The</strong>se companies have a chance to create a parallel mechanism<br />

of management, money transfer <strong>and</strong> logistics <strong>in</strong> Armenia. Armenia can ga<strong>in</strong> from <strong>and</strong> take risks<br />

<strong>in</strong> <strong>the</strong> situation that was just stated. Some companies consider mov<strong>in</strong>g to Armenia, while o<strong>the</strong>rs<br />

have already done so. In <strong>the</strong> <strong>in</strong>terim, <strong>the</strong>re is a chance that Armenia may make a new start,<br />

while o<strong>the</strong>rs see this as a way to send economic shocks <strong>and</strong> additional sanctions. (Makhmutova<br />

2019).<br />

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<strong>The</strong> impact of sanctions on Russia <strong>and</strong> <strong>the</strong> consequent Russian bus<strong>in</strong>ess relocation to Armenia<br />

2 Research<br />

Russia came under pressure <strong>and</strong> was subject to sanctions from <strong>the</strong> West <strong>and</strong> o<strong>the</strong>r countries<br />

as a result of <strong>the</strong> military escalation between Russia <strong>and</strong> Ukra<strong>in</strong>e. <strong>The</strong> sanctions are a direct<br />

response to <strong>the</strong> Russian Foreign policy (Shufan 2015). Russia’s <strong>in</strong>vasion of Ukra<strong>in</strong>e has resulted<br />

<strong>in</strong> a slow<strong>in</strong>g <strong>the</strong> economics growth <strong>and</strong> accelerat<strong>in</strong>g <strong>in</strong>flation all over <strong>the</strong> world (Kammer/Azur<br />

2022). Meanwhile, <strong>the</strong> effects of Russia’s recession <strong>and</strong> <strong>the</strong> sanctions imposed on it will be<br />

seen <strong>in</strong> neighbor<strong>in</strong>g <strong>and</strong> <strong>in</strong>tegrated countries. In particular, <strong>the</strong>se countries will face disruptions<br />

<strong>in</strong> trade, supply cha<strong>in</strong>s <strong>and</strong> money transfers. <strong>The</strong> bus<strong>in</strong>ess outlook has also clouded due to <strong>the</strong><br />

Ukra<strong>in</strong>e conflict as decreased bus<strong>in</strong>ess confidence <strong>and</strong> <strong>in</strong>creased uncerta<strong>in</strong>ty for <strong>in</strong>vestors will<br />

negatively <strong>in</strong>fluence capital flows. Sanctions have led to corporate exodus of many transnational<br />

corporations operat<strong>in</strong>g <strong>in</strong> Russia. <strong>The</strong> TNCs from different <strong>in</strong>dustries announced to leave <strong>the</strong><br />

Russian market <strong>and</strong> thus multiply<strong>in</strong>g <strong>the</strong> negative impact of sanctions.<br />

<strong>The</strong> first wave of sell<strong>in</strong>g Russian assets <strong>in</strong>cluded retail companies such as Prisma, Jysk, OBI,<br />

Nike (did not extend <strong>the</strong> franchise agreement with Inventive Retail Group) <strong>and</strong> many o<strong>the</strong>r<br />

transnational corporations have announced <strong>the</strong> possibility of sell<strong>in</strong>g <strong>the</strong>ir Russian actives.<br />

<strong>The</strong> oil <strong>and</strong> gas companies such as BP, Shell, Fortum, General Electric, OmV <strong>and</strong> many o<strong>the</strong>rs<br />

have suspended deliveries, new <strong>in</strong>vestments, or <strong>the</strong> full activity <strong>in</strong> Russia. <strong>The</strong> TNCs from <strong>the</strong><br />

­telecommunication sector such as OneWeb, Cisco, Lumen, <strong>and</strong> NEC suspended <strong>the</strong>ir activity,<br />

<strong>in</strong>vestments or export operations. YIT, Herzog & de Meuron, MVRDD suspended <strong>the</strong>ir activities<br />

<strong>in</strong> construction <strong>and</strong> architecture.<br />

International companies need to ensure <strong>the</strong> supply of necessary components <strong>in</strong> case <strong>the</strong><br />

USA imposes restrictions on <strong>the</strong> export of high-tech production to Russia; <strong>the</strong>y are look<strong>in</strong>g for<br />

alternative sources of raw materials.<br />

In total, more than 5,000 foreign corporations operate <strong>in</strong> Russia <strong>and</strong> thus directly form 2-3%<br />

of jobs <strong>in</strong> <strong>the</strong> Russian economy. O<strong>the</strong>r foreign bus<strong>in</strong>esses operat<strong>in</strong>g <strong>in</strong> Russia responded<br />

differently to <strong>the</strong> current circumstances. More than half of <strong>the</strong> bus<strong>in</strong>esses cont<strong>in</strong>ue operat<strong>in</strong>g<br />

normally <strong>and</strong> have not issued any work restrictions. In particular, 21% of <strong>the</strong> lead<strong>in</strong>g 600 corporations<br />

suspended activity, with 46% declar<strong>in</strong>g <strong>the</strong>ir <strong>in</strong>tention to limit <strong>the</strong>ir bus<strong>in</strong>ess <strong>in</strong> some way<br />

on <strong>the</strong> territory of Russia (Prokud<strong>in</strong>a/Pleshakova 2022).<br />

<strong>The</strong> range of organizations <strong>and</strong> sectors leav<strong>in</strong>g Russia is very wide, <strong>and</strong> <strong>the</strong> exodus of transnational<br />

corporations from Russia <strong>in</strong>cluded different mechanisms of suspend<strong>in</strong>g activities<br />

(cancellation of ongo<strong>in</strong>g projects <strong>and</strong> deliveries, <strong>in</strong>vestments, technical assistance, stopp<strong>in</strong>g<br />

payments acceptance, disabl<strong>in</strong>g of monetization, disabl<strong>in</strong>g of contextual advertis<strong>in</strong>g <strong>and</strong> user<br />

registration <strong>in</strong> <strong>the</strong> cloud service, stopped broadcast<strong>in</strong>g <strong>and</strong> o<strong>the</strong>r forms).<br />

<strong>The</strong> most important <strong>in</strong>dustries <strong>and</strong> TNCs which were deal<strong>in</strong>g with some cancellation process<br />

are from <strong>the</strong> follow<strong>in</strong>g sectors: transportation <strong>and</strong> delivery (Fedex, DHL, UPS, Cyprus Po­st),<br />

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­airplanes (Boe<strong>in</strong>g, Airbus, AerCap, EASA, PowerJet), technology (Apple, Dell, Intel, Nokia, HP,<br />

­Panasonic, IBM, ASUS, Acer), software (SAP, Microsoft, Autodesk, Adobe, Figma, Avast, Miro,<br />

Norton, Corel), Internet (Galaxy Store, Google, Facebook, Rutracker), gam<strong>in</strong>g (Playstation,<br />

­N<strong>in</strong>tendo, Steam, Ubisoft, Niantic, Koch Media), Internet shops, services (Bolt, Ebay, Airbnb,<br />

Upwork, Amazon, SerpStat, Canva), hotel <strong>and</strong> restaurant bus<strong>in</strong>ess (McDonalds, Hyatt, Mariot,<br />

Papa John’s, ­Starbucks, Laduree) <strong>and</strong> o<strong>the</strong>rs (Сравнц 2022).<br />

Companies from Spa<strong>in</strong>, Sweden, Japan, Pol<strong>and</strong> <strong>and</strong> Switzerl<strong>and</strong> were <strong>the</strong> ones that limited <strong>the</strong>ir<br />

activities on <strong>the</strong> Russian market <strong>the</strong> most actively, while those from Austria, France, Canada, <strong>the</strong><br />

Ne<strong>the</strong>rl<strong>and</strong>s, Denmark <strong>and</strong> Italy were <strong>the</strong> least active ones. About 90 companies have announced<br />

<strong>the</strong>ir f<strong>in</strong>al withdrawal from Russia. Some of <strong>the</strong>m chose a scenario of hard exit (with <strong>the</strong> liquidation<br />

of <strong>the</strong> Russian subdivision <strong>and</strong> <strong>the</strong> transfer of some of <strong>the</strong>ir employees to o<strong>the</strong>r countries).<br />

<strong>The</strong>se companies were ma<strong>in</strong>ly from <strong>the</strong> field of consult<strong>in</strong>g <strong>and</strong> IT (Prokud<strong>in</strong>a/Pleshakova 2022).<br />

<strong>The</strong> statements about <strong>the</strong> suspension of <strong>the</strong>ir activities on <strong>the</strong> Russian market do not always<br />

mean <strong>the</strong> refusal of foreign suppliers to fulfill <strong>the</strong>ir obligations under already concluded ­contracts.<br />

Some of <strong>the</strong> companies sold <strong>the</strong>ir actives to Russian companies. <strong>The</strong> option of full exodus is<br />

more typical of <strong>the</strong> largest companies with a global reach, for which <strong>the</strong> Russian market is small.<br />

Companies for which sales <strong>in</strong> Russia accounted for a significant share of revenue are more<br />

likely to adapt to new regulatory conditions <strong>and</strong> characteristics of dem<strong>and</strong> <strong>and</strong> supply <strong>and</strong> will<br />

cont<strong>in</strong>ue to work on <strong>the</strong> domestic market. In particular, this refers to <strong>the</strong> average foreign bus<strong>in</strong>ess<br />

from neighbor<strong>in</strong>g countries (Pol<strong>and</strong>, Czech Republic, F<strong>in</strong>l<strong>and</strong>, Hungary <strong>and</strong> o<strong>the</strong>rs) (Prokud<strong>in</strong>a/<br />

Pleshakova 2022).<br />

In many cases <strong>the</strong> sanctions did not require companies to leave but <strong>the</strong> political pressure on<br />

commercial structures was so great that foreign partners of Russian enterprises do not underst<strong>and</strong><br />

which consequences <strong>the</strong> cont<strong>in</strong>uation of work <strong>in</strong> <strong>the</strong> Russian Federation would entail.<br />

External sanctions, currency fluctuations, difficulties with logistics, broken supply cha<strong>in</strong>s,<br />

problems with cash circulation, payments <strong>and</strong> settlements between Russian organizations <strong>and</strong><br />

<strong>the</strong>ir foreign counterparties, constant adjustments of <strong>the</strong> imposed restrictions complicate <strong>the</strong><br />

activities of Russian <strong>and</strong> foreign companies. <strong>The</strong> bus<strong>in</strong>ess must have predictability <strong>and</strong> plann<strong>in</strong>g<br />

possibility but here we see <strong>in</strong>creased <strong>in</strong>vestor uncerta<strong>in</strong>ty.<br />

<strong>The</strong> <strong>in</strong>troduction of sanctions has resulted <strong>in</strong> <strong>the</strong> collapse of exist<strong>in</strong>g prospects for economic<br />

development <strong>and</strong> <strong>in</strong>creased capital outflow suspend<strong>in</strong>g many important projects. <strong>The</strong> socioeconomic<br />

situation <strong>in</strong> Russia rema<strong>in</strong>s difficult, as unprecedented Western sanctions aga<strong>in</strong>st<br />

Moscow have created new risks for <strong>the</strong> region’s economy.<br />

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<strong>The</strong> impact of sanctions on Russia <strong>and</strong> <strong>the</strong> consequent Russian bus<strong>in</strong>ess relocation to Armenia<br />

Why Russian companies choose Armenia?<br />

Western sanctions are spread<strong>in</strong>g far beyond Russia. <strong>The</strong> economies of <strong>the</strong> former Soviet Union<br />

<strong>and</strong> Russia are <strong>in</strong>terconnected. S<strong>in</strong>ce Russia served as a hub for many bus<strong>in</strong>esses connect<strong>in</strong>g to<br />

o<strong>the</strong>r CIS nations, <strong>the</strong> new distribution cha<strong>in</strong>s should be considered. As an alternative, bus<strong>in</strong>esses<br />

can relocate to lower-risk countries. <strong>The</strong> service sectors can relocate more quickly than ­<strong>in</strong>dustrial<br />

facilities. Confronted with uncerta<strong>in</strong>ty, companies are constra<strong>in</strong>ed to optimize bus<strong>in</strong>esses <strong>and</strong><br />

seek new markets to maneuver <strong>the</strong> sanctions <strong>and</strong> limited resources. <strong>The</strong> s olution to this issue is<br />

bus<strong>in</strong>ess relocation, which not only makes it possible to reta<strong>in</strong> operat<strong>in</strong>g results but also helps<br />

to foster <strong>the</strong> growth <strong>and</strong> creation of new bus<strong>in</strong>ess sectors.<br />

Armenia is one of <strong>the</strong>se dest<strong>in</strong>ations. S<strong>in</strong>ce <strong>the</strong> beg<strong>in</strong>n<strong>in</strong>g of <strong>the</strong> Russian-Ukra<strong>in</strong>ian conflict, some<br />

companies have relocated <strong>the</strong>ir bus<strong>in</strong>esses to Armenia. Armenia represents a new opportunity<br />

or chance for global TNC’s subsidiary relocation. However, <strong>the</strong> size <strong>and</strong> capacity of <strong>the</strong> Armenian<br />

market is small, but it could be <strong>the</strong> <strong>in</strong>termediate basis for chang<strong>in</strong>g <strong>the</strong>ir strategy <strong>in</strong> <strong>the</strong> region.<br />

<strong>The</strong> choice of relocat<strong>in</strong>g legal subsidiaries depends on <strong>the</strong> parent company’s decision, its global<br />

bus<strong>in</strong>ess patterns <strong>and</strong> preferences. F<strong>in</strong>ancial, commercial <strong>and</strong> o<strong>the</strong>r reasons can lead to bus<strong>in</strong>ess<br />

relocation, but it is crucial for companies to comprehend <strong>the</strong> implications. <strong>The</strong> companies<br />

can choose one of <strong>the</strong> follow<strong>in</strong>g forms of bus<strong>in</strong>ess relocation: full migration, use of Intellectual<br />

property (IP) hold<strong>in</strong>g companies <strong>and</strong> regional hubs, offshor<strong>in</strong>g, chang<strong>in</strong>g <strong>the</strong> risk model, etc.<br />

(Thornton 2015).<br />

Some bus<strong>in</strong>esses are sensitive to market perception. Any restructur<strong>in</strong>g that could result <strong>in</strong> headl<strong>in</strong>e<br />

news <strong>in</strong> <strong>the</strong> media could detrimentally affect <strong>the</strong> profitability of those bus<strong>in</strong>esses (Thornton<br />

2015). It is also necessary to choose <strong>the</strong> right country <strong>in</strong> order to leave <strong>the</strong> possibility of cooperation<br />

with both domestic residents <strong>and</strong> foreign ones.<br />

However, global companies choose <strong>the</strong> countries that are more predictable for <strong>the</strong>m consider<strong>in</strong>g<br />

not only economic but also political benefits. <strong>The</strong> challenge for global companies is to be ready not<br />

just for <strong>the</strong> Russian fallout, but for develop<strong>in</strong>g a responsible strategy for <strong>the</strong> next ­country selected.<br />

For relocat<strong>in</strong>g bus<strong>in</strong>esses abroad, companies need access to markets, ­competitive ­advantages,<br />

simplified procedures, tax <strong>in</strong>centives <strong>and</strong> costs reduction. <strong>The</strong> ­relocation is ­associated with<br />

costs, legal <strong>and</strong> tax matters. <strong>The</strong> costs of relocation depend on <strong>the</strong> ­relocation type. Even <strong>in</strong> case<br />

of staff relocation, companies are associated with higher costs, as professionals must ensure<br />

hav<strong>in</strong>g competitive relocation packages. <strong>The</strong> essential consideration is whe<strong>the</strong>r <strong>the</strong> f<strong>in</strong>ancial<br />

advantage of relocat<strong>in</strong>g workers will surpass <strong>the</strong> expense of <strong>the</strong> movement.<br />

From this perspective, Armenia is <strong>the</strong> favorable dest<strong>in</strong>ation for relocation as E<strong>EU</strong> citizens, who<br />

work <strong>in</strong> <strong>the</strong> Republic of Armenia, as well as <strong>the</strong>ir family members, are exempted from <strong>the</strong> requirement<br />

to obta<strong>in</strong> any permission type document for <strong>the</strong> whole period of <strong>the</strong>ir employment contract<br />

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<strong>in</strong> accordance with <strong>the</strong> Treaty on <strong>the</strong> EA<strong>EU</strong>. 1 <strong>The</strong> legal entities registration process is also simplified.<br />

<strong>The</strong> government provides additional tax <strong>in</strong>centives to Armenian resident entities that meet<br />

several criteria. <strong>The</strong> Armenian government has also begun a program for relocation assistance.<br />

Armenia has attracted Russian bus<strong>in</strong>esses, notably those <strong>in</strong> <strong>the</strong> service <strong>and</strong> IT sectors, as<br />

­opposed to worldwide firms relocat<strong>in</strong>g <strong>the</strong>re. <strong>The</strong> companies mov<strong>in</strong>g to Armenia are directly<br />

connected with Western markets <strong>and</strong> need to mitigate some risks <strong>and</strong> prevent more losses or<br />

­disruptions to <strong>the</strong>ir bus<strong>in</strong>esses. Now, approximately 1.7 thous<strong>and</strong> companies <strong>and</strong> 3,000 ­<strong>in</strong>dividual<br />

entrepreneurs have registered <strong>in</strong> Armenia (Armeniasputnik.am 2022). Thirty thous<strong>and</strong> citizens<br />

moved to Yerevan for long-term residence <strong>and</strong> more than seventy thous<strong>and</strong> bank ­accounts of<br />

Russian citizens were opened <strong>in</strong> <strong>the</strong> Armenian banks (Banks.am 2022).<br />

Meantime, some companies have used <strong>the</strong> documentary relocation form. It <strong>in</strong>volves mov<strong>in</strong>g<br />

“on paper”, that is, register<strong>in</strong>g a bus<strong>in</strong>ess abroad without actually transferr<strong>in</strong>g production <strong>and</strong><br />

­mov<strong>in</strong>g employees. Most often, this solution turns out to be <strong>the</strong> most profitable: it <strong>in</strong>volves m<strong>in</strong>imal<br />

f<strong>in</strong>ancial costs but helps to br<strong>in</strong>g <strong>the</strong> organization to <strong>the</strong> <strong>in</strong>ternational level, transfer assets<br />

to ano<strong>the</strong>r jurisdiction, <strong>and</strong> also reduce <strong>the</strong> tax burden.<br />

<strong>The</strong> fact that <strong>the</strong>re are numerous companies registered <strong>in</strong> Armenia does not imply that <strong>the</strong>y have<br />

moved formally <strong>the</strong>re. It can <strong>in</strong>volve chang<strong>in</strong>g contractual relationships with bus<strong>in</strong>esses <strong>in</strong> o<strong>the</strong>r<br />

countries, structur<strong>in</strong>g bus<strong>in</strong>ess us<strong>in</strong>g foreign <strong>in</strong>frastructure, reorient<strong>in</strong>g cash flows, etc.<br />

Various types of companies moved to Armenia. <strong>The</strong> first ones are companies that are ­work<strong>in</strong>g<br />

for a foreign parent company <strong>and</strong> have signals that employee relocation is imm<strong>in</strong>ent. <strong>The</strong> second<br />

category are export<strong>in</strong>g companies work<strong>in</strong>g for clients from <strong>the</strong> so-called ‘’unfriendly’’ countries<br />

for Russia. <strong>The</strong>y have moved, <strong>the</strong>ir offices out of Russia “on paper” or actually <strong>in</strong> order to sign<br />

contracts, receive orders as well as receive money from customers abroad due to concerns<br />

about sanctions violations <strong>and</strong> issues with currency transfers. <strong>The</strong> third category consists of<br />

freelancers whose marketplaces have ceased to function, where <strong>the</strong>y earned money by sell<strong>in</strong>g<br />

<strong>the</strong>ir own applications <strong>and</strong> provid<strong>in</strong>g software development services. If <strong>the</strong> freelancers choose<br />

Armenia as a permanent place for <strong>the</strong>ir activities, it will have a positive effect on Armenia’s<br />

economy.<br />

Relocation of high-tech <strong>in</strong>dustries was impossible as it was forbidden to export equipment<br />

from Russia. In addition, for relocation production facilities local sources of raw materials,<br />

even recyclables, are necessary. Bus<strong>in</strong>ess considerations such as <strong>the</strong> presence of skilled labor,<br />

­suppliers, <strong>and</strong> customers <strong>in</strong> a specific area <strong>in</strong>fluence <strong>the</strong> relocation of value-added functions.<br />

<strong>The</strong>re might still be potential to consolidate <strong>the</strong>se <strong>in</strong> a regional hub that is both cost <strong>and</strong> tax<br />

­effective. Of course, <strong>the</strong>re are also some cases of exp<strong>and</strong><strong>in</strong>g production facilities to Armenia.<br />

1 Migration Service of <strong>the</strong> M<strong>in</strong>istry of Territorial Adm<strong>in</strong>istration <strong>and</strong> Infrastructure of Armenia, System of Work Permit<br />

https://workpermit.am/en/about<br />

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<strong>The</strong> impact of sanctions on Russia <strong>and</strong> <strong>the</strong> consequent Russian bus<strong>in</strong>ess relocation to Armenia<br />

<strong>The</strong> ma<strong>in</strong> advantage of this process is <strong>the</strong> possibility to import European <strong>and</strong> American raw<br />

­materials <strong>and</strong> technologies, <strong>and</strong> export to <strong>the</strong> world <strong>and</strong> Russia.<br />

For example, <strong>the</strong> IT companies that entered <strong>the</strong> Armenian markets can have both a positive<br />

<strong>and</strong> a negative <strong>in</strong>fluence on <strong>the</strong> IT <strong>in</strong>dustry of Armenia. <strong>The</strong> sector is currently undergo<strong>in</strong>g a<br />

­significant transformation: <strong>the</strong> shift from <strong>the</strong> outsourc<strong>in</strong>g model to <strong>in</strong>-house product development<br />

<strong>and</strong> entrepreneurship is <strong>in</strong>creas<strong>in</strong>g (World Bank 2019). In addition, <strong>in</strong> order to ma<strong>in</strong>ta<strong>in</strong><br />

growth based on high-quality labor, <strong>the</strong> country is currently faced with <strong>the</strong> issue of ensur<strong>in</strong>g<br />

sufficient supply due to <strong>the</strong> scarcity of labor <strong>and</strong> <strong>the</strong> small size of <strong>the</strong> country, as well as <strong>the</strong><br />

<strong>in</strong>creased competitiveness between <strong>the</strong> local <strong>in</strong>dustrial sector <strong>and</strong> <strong>in</strong>ternational organizations.<br />

At <strong>the</strong> current stage of development of <strong>the</strong> sector, this is a difficult task, as <strong>the</strong> skills shortage<br />

<strong>in</strong>creases with <strong>the</strong> positive dynamics <strong>and</strong> development of <strong>the</strong> economy (World Bank 2014). This<br />

means that Russian companies offer<strong>in</strong>g higher salaries can attract <strong>the</strong> Armenian workforce. On<br />

<strong>the</strong> o<strong>the</strong>r h<strong>and</strong>, <strong>the</strong> presence of <strong>in</strong>ternational companies br<strong>in</strong>gs <strong>in</strong>dustry-specific culture to <strong>the</strong><br />

country. In addition to that, <strong>the</strong> <strong>in</strong>ternational boom of start-ups is also driv<strong>in</strong>g <strong>the</strong> development<br />

of <strong>the</strong> entrepreneurial model among IT <strong>and</strong> high-tech professionals. <strong>The</strong> local tax revenues <strong>and</strong><br />

<strong>the</strong> spillover effects are promis<strong>in</strong>g.<br />

Never<strong>the</strong>less, we should consider that <strong>the</strong> IT <strong>in</strong>dustry is one of <strong>the</strong> ma<strong>in</strong> sectors of <strong>the</strong> economy,<br />

which has tax <strong>in</strong>centives. <strong>The</strong> Law «On State support <strong>in</strong> <strong>the</strong> sector of <strong>in</strong>formation technologies»<br />

determ<strong>in</strong>es <strong>the</strong> activities, which are subject to tax <strong>in</strong>centives, ma<strong>in</strong>ly software development,<br />

data process<strong>in</strong>g, web host<strong>in</strong>g <strong>and</strong> o<strong>the</strong>rs. <strong>The</strong>re is a requirement that a company receiv<strong>in</strong>g <strong>the</strong><br />

tax ­<strong>in</strong>centives certificate does not have more than 30 employees. (ARLIS 2014). <strong>The</strong> Law on<br />

State Support of <strong>the</strong> Information Technology Sector of <strong>the</strong> Republic of Armenia enables newly<br />

­established organizations to pay only 10% <strong>in</strong>come tax <strong>and</strong> be exempt from profit tax. In addition,<br />

companies operat<strong>in</strong>g <strong>in</strong> <strong>the</strong> ICT sector can benefit from advantages <strong>and</strong> tax benefits of <strong>the</strong> Free<br />

Economic Zone ECOS. 2<br />

S<strong>in</strong>ce <strong>the</strong> adoption of <strong>the</strong> law, 2049 organizations have already benefited from <strong>the</strong> tax exemption<br />

provided to IT companies. However, <strong>the</strong> year 2022 is unprecedented <strong>in</strong> <strong>the</strong> number of<br />

­applications <strong>and</strong> issued certificates. <strong>The</strong> number of certified companies is 1039, <strong>the</strong> founders of<br />

716 are citizens of o<strong>the</strong>r countries. 3 <strong>The</strong>se tax <strong>in</strong>centives enable Russian companies to conduct<br />

bus<strong>in</strong>ess with organizations from all over <strong>the</strong> world <strong>and</strong> significantly save on payments.<br />

When we generally talk about <strong>the</strong> opportunities provided by foreign-<strong>in</strong>vested companies <strong>in</strong> <strong>the</strong><br />

host country, we often mention job creation, <strong>in</strong>creased tax revenues, localization of market<strong>in</strong>g<br />

<strong>and</strong> management skills, etc. For registered Russian companies <strong>in</strong> Armenia to have a certa<strong>in</strong><br />

long-term positive effect, it is necessary to f<strong>in</strong>d out if <strong>the</strong>se bus<strong>in</strong>esses are prepared to extend<br />

<strong>the</strong>ir operations <strong>in</strong> Armenia <strong>in</strong> <strong>the</strong> future <strong>and</strong> what <strong>the</strong> requirements are.<br />

2 ECOS Free Economic Zone: https://fez.ecos.am/am#rec94931229<br />

3 State support to IT <strong>in</strong>dustry: https://hti.am/pages.php?lang=1&id=7890&page_name=news<br />

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<strong>The</strong> impact of relocation on <strong>the</strong> Armenian economy<br />

From <strong>the</strong> perspective of Armenia, it is important to comprehend <strong>the</strong> impacts which take many<br />

different forms. Meanwhile, <strong>the</strong> economy of Armenia is significantly impacted by <strong>the</strong> relocation<br />

of Russian bus<strong>in</strong>esses. Armenian economy ga<strong>in</strong>ed new possibilities, <strong>and</strong> is transformed <strong>in</strong>to<br />

a commercial, logistical, <strong>and</strong> f<strong>in</strong>ancial hub. <strong>The</strong> <strong>in</strong>flux of Russian citizens <strong>and</strong> capital sharply<br />

accelerated economic growth <strong>in</strong> Armenia. As a result, <strong>the</strong> actual rate of economic growth <strong>in</strong><br />

2022 has been far higher than predicted. <strong>The</strong> <strong>in</strong>crease <strong>in</strong> both local <strong>and</strong> <strong>in</strong>ternational dem<strong>and</strong> is<br />

accountable for <strong>the</strong> revised projection of 12.9% economic growth (Inflation report 2022b).<br />

As we can see from table 1, <strong>the</strong> <strong>in</strong>dex of economic activity <strong>in</strong> Armenia <strong>in</strong>creased by 14.5% from<br />

January through October 2022 <strong>in</strong> comparison to <strong>the</strong> same period <strong>in</strong> 2021. <strong>The</strong> <strong>in</strong>crease <strong>in</strong> <strong>the</strong><br />

economic activity <strong>in</strong>dex was driven ma<strong>in</strong>ly by growth <strong>in</strong> services <strong>and</strong> trade.<br />

Table 1: Indicators of <strong>the</strong> socio-economic situation of <strong>the</strong> Republic of Armenia<br />

January-October 2022 <strong>in</strong> comparison to same period <strong>in</strong> 2021, %<br />

Economic activity <strong>in</strong>dex 114.5<br />

Trade volume 115.5<br />

Services volume 127.9<br />

Construction volume 114.4<br />

Source: Armstat 2022<br />

Accord<strong>in</strong>g to <strong>the</strong> Central Bank of Armenia dem<strong>and</strong> has <strong>in</strong>creased, which is largely due to an<br />

<strong>in</strong>crease <strong>in</strong> <strong>in</strong>ternational visitors (primarily from Russia). This is also reflected <strong>in</strong> an <strong>in</strong>crease <strong>in</strong><br />

<strong>the</strong> services sector’s output <strong>and</strong> exports. <strong>The</strong> additional capital <strong>and</strong> labor <strong>in</strong>flows will contribute<br />

to <strong>the</strong> potential growth of GDP dur<strong>in</strong>g 2022. It will ma<strong>in</strong>ly reflect <strong>in</strong> <strong>the</strong> extension of IT services<br />

by provid<strong>in</strong>g higher economic growth <strong>in</strong> 2022 than <strong>in</strong> 2021 (Inflation report 2022a). Dur<strong>in</strong>g 2022,<br />

<strong>the</strong> growth was ma<strong>in</strong>ly registered <strong>in</strong> <strong>the</strong> follow<strong>in</strong>g sectors <strong>in</strong>formation <strong>and</strong> communication <strong>and</strong><br />

<strong>the</strong> accommodation <strong>and</strong> cater<strong>in</strong>g.<br />

<strong>The</strong> volume of receipts from abroad was 922 million dollars from January to June 2022, an<br />

<strong>in</strong>crease of 97.3% over <strong>the</strong> same period <strong>in</strong> 2021. Dur<strong>in</strong>g <strong>the</strong> same time period, transfers from<br />

­Armenia <strong>in</strong>creased by 326 million dollars, or 57.7%, to 891 million dollars (Armenian Bank<strong>in</strong>g<br />

­Sector Overview 2022). In this context, <strong>the</strong> Russian-Ukra<strong>in</strong>ian conflict <strong>and</strong> <strong>the</strong> sanctions imposed<br />

on Russia <strong>and</strong> <strong>the</strong>ir duration caused certa<strong>in</strong> changes <strong>in</strong> <strong>the</strong> exchange rate market of Armenia.<br />

<strong>The</strong> large f<strong>in</strong>ancial <strong>in</strong>flows lead to <strong>the</strong> devaluation of <strong>the</strong> Armenian currency. <strong>The</strong> Armenian dram<br />

is steadily streng<strong>the</strong>n<strong>in</strong>g its position, especially aga<strong>in</strong>st <strong>the</strong> dollar <strong>and</strong> <strong>the</strong> euro. In this case, <strong>the</strong><br />

exporters are at risk, but <strong>the</strong>y are too important for <strong>the</strong> economy.<br />

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<strong>The</strong> impact of sanctions on Russia <strong>and</strong> <strong>the</strong> consequent Russian bus<strong>in</strong>ess relocation to Armenia<br />

<strong>The</strong> transfer of <strong>the</strong> economic shock from Russia to Armenia is also comb<strong>in</strong>ed with ­<strong>in</strong>flationary<br />

effects on <strong>the</strong> Armenian economy from <strong>the</strong> external sector <strong>and</strong> a slowdown <strong>in</strong> <strong>the</strong> growth of<br />

o<strong>the</strong>r partner countries. Of course, <strong>in</strong> <strong>the</strong> short term, <strong>the</strong>re are positive impulses <strong>in</strong> terms of<br />

additional consumption, rent payments <strong>and</strong> general economic activity.<br />

Today Armenia as a member of <strong>the</strong> Eurasian economic union uses all available opportunities for<br />

develop<strong>in</strong>g trade <strong>and</strong> promot<strong>in</strong>g Armenian products to Russian market. <strong>The</strong> economic relations<br />

between <strong>the</strong> two countries developed successfully. <strong>The</strong> volume of Russian-Armenian trade<br />

­turnover is <strong>in</strong>creas<strong>in</strong>g consistently. Be<strong>in</strong>g a member of <strong>the</strong> E<strong>EU</strong> Armenia has new opportunities<br />

to exp<strong>and</strong> trade <strong>and</strong> economic ties with Russia. However, <strong>the</strong> deep correlation between Russian<br />

<strong>and</strong> Armenian economies <strong>in</strong> terms of trade, <strong>in</strong>vestments, labor migration, exchange rates <strong>and</strong><br />

o<strong>the</strong>r economic relations can lead to economic downturn <strong>in</strong> Armenia. Russia’s military operation<br />

<strong>in</strong> Ukra<strong>in</strong>e <strong>and</strong> sanctions imposed on Russia will have a significant impact on <strong>the</strong> economic life<br />

of Armenia <strong>in</strong> <strong>the</strong> medium <strong>and</strong> long term. <strong>The</strong> systemic implications for <strong>the</strong> global economy<br />

<strong>and</strong> <strong>the</strong> spillover effect on Armenia, <strong>and</strong> countries <strong>and</strong> markets connected with Russia, will be<br />

significant.<br />

<strong>The</strong> close ties between Armenia <strong>and</strong> Russia <strong>in</strong> <strong>the</strong> field of trade <strong>and</strong> payment systems will affect<br />

trade, money transfers, <strong>in</strong>vestments <strong>and</strong> tourism, which will negatively affect economic growth,<br />

<strong>in</strong>flation, foreign operations accounts <strong>and</strong> budget accounts (Kammer/Azur 2022). Hav<strong>in</strong>g not<br />

diversified its economy, Armenia cont<strong>in</strong>ues to be over-<strong>in</strong>tegrated <strong>in</strong>to <strong>the</strong> Russian economy, thus<br />

also be<strong>in</strong>g entangled with <strong>the</strong> sanctions to some extent. <strong>The</strong> most serious risk for Armenia is <strong>the</strong><br />

possibility of secondary sanctions <strong>and</strong> <strong>the</strong>ir consequences.<br />

<strong>The</strong> impact of <strong>the</strong> first wave of sanctions on Armenia’s economy can be assessed positively, due<br />

to <strong>the</strong> fact that <strong>the</strong>re is a noticeable activation of <strong>the</strong> economy <strong>and</strong> bus<strong>in</strong>ess sector, particularly<br />

<strong>in</strong> <strong>the</strong> field of <strong>in</strong>formation technologies, an <strong>in</strong>crease <strong>in</strong> dem<strong>and</strong> <strong>in</strong> <strong>the</strong> market of both real estate<br />

<strong>and</strong> consumer goods <strong>and</strong> services, <strong>and</strong> currency flows.<br />

Armenia cont<strong>in</strong>ues to rema<strong>in</strong> <strong>in</strong> <strong>the</strong> E<strong>EU</strong>, which implies a free trade regime with Russia under<br />

sanctions. For this reason, we th<strong>in</strong>k that Armenia should <strong>in</strong>crease its vigilance, so <strong>the</strong> West will<br />

not <strong>in</strong>terpret it as an <strong>in</strong>direct support.<br />

3 Conclusion<br />

<strong>The</strong> <strong>in</strong>tensification of geopolitical confrontation <strong>in</strong> <strong>the</strong> world not only adds uncerta<strong>in</strong>ty to<br />

­forecasts, but also highlights <strong>the</strong> tendencies lead<strong>in</strong>g to a new world order. <strong>The</strong> Russian-­Ukra<strong>in</strong>ian<br />

conflict with large-scale sanctions <strong>and</strong> its consequences have created uncerta<strong>in</strong>ty <strong>in</strong> <strong>the</strong> region.<br />

Severe sanctions imposed on Russia will persist <strong>in</strong> <strong>the</strong> short <strong>and</strong> medium terms, <strong>and</strong> problems<br />

<strong>in</strong> supply, value cha<strong>in</strong>s, or <strong>in</strong> <strong>in</strong>ternational trade flows will not be resolved quickly. <strong>The</strong> sanctions<br />

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<strong>and</strong> <strong>the</strong>ir consequences are long-term, <strong>and</strong> <strong>the</strong> situation can last for years, even if <strong>the</strong> hot phase<br />

of <strong>the</strong> Ukra<strong>in</strong>ian conflict will end <strong>in</strong> a few months.<br />

Russia’s <strong>in</strong>vasion of Ukra<strong>in</strong>e has already had <strong>and</strong> will cont<strong>in</strong>ue to have significant political <strong>and</strong><br />

economic consequences for many countries <strong>in</strong> <strong>the</strong> world, especially for countries economically<br />

<strong>in</strong>terconnected with <strong>the</strong> conflict<strong>in</strong>g parties, <strong>in</strong>clud<strong>in</strong>g Armenia. Russia will likely try to f<strong>in</strong>d<br />

ways around <strong>the</strong> sanctions. In this context, Armenia is <strong>in</strong> a somewhat vulnerable position.<br />

<strong>The</strong> ­deepen<strong>in</strong>g Russian-Western divide <strong>and</strong> sanctions have <strong>and</strong> will cont<strong>in</strong>ue to have negative<br />

consequences for Armenia. We are concerned that <strong>the</strong>re is a real danger that Armenia may<br />

come under Western sanctions because of help<strong>in</strong>g Russia to avoid <strong>the</strong>m.<br />

For now, Armenia has some positive signals <strong>in</strong> terms of relocated labor <strong>and</strong> capital, but <strong>the</strong> latest<br />

trend creates high uncerta<strong>in</strong>ty <strong>and</strong> significant risks for <strong>the</strong> Armenian economy. Capital-f<strong>in</strong>ancial<br />

flows to Armenia, <strong>the</strong>ir nature, size, duration <strong>and</strong> <strong>the</strong> possible transformation of economy can<br />

have both a positive <strong>and</strong> a negative impact on <strong>the</strong> economic development of Armenia.<br />

But <strong>the</strong> stability of Armenia <strong>in</strong> <strong>the</strong> process of <strong>the</strong> new reorientation of <strong>the</strong> world depends on <strong>the</strong><br />

country’s defense capability, supply of strategic resources <strong>and</strong> <strong>in</strong>ternal cohesion. In this regard,<br />

Armenia should reth<strong>in</strong>k <strong>the</strong> strategy <strong>and</strong> logic of <strong>the</strong> E<strong>EU</strong> <strong>in</strong>teraction by ensur<strong>in</strong>g <strong>in</strong>ternal stability<br />

<strong>and</strong> self-sufficiency.<br />

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Сравнц (2022): List of foreign companies that left Russia. Orig<strong>in</strong>al title: Сравнц (2022): Список<br />

иностранных компаний, которые ушли из России. (<strong>in</strong> Russian), https://www.sravni.ru/­<br />

novost/2022/3/29/opublikovan-spisok-<strong>in</strong>ostrannyh-kompanij-kotorye-ushli-iz-rossii/<br />

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List of Contributors<br />

Susanna Aghajanyan, PhD<br />

Armenian State University of Economics, Yerevan<br />

Susanna Aghajanyan, C<strong>and</strong>idate of Economic Sciences, Assistant Professor at <strong>the</strong> Department of<br />

International Economic Relations, Armenian State University of Economics – Yerevan, Armenia.<br />

Dr. Susanna Aghajanyan works at <strong>the</strong> Armenian State University of Economics (ASUE) comb<strong>in</strong><strong>in</strong>g<br />

academic <strong>and</strong> practical experience. She is an <strong>in</strong>vited expert at <strong>the</strong> “Amberd” Research Center. She<br />

has participated <strong>in</strong> several local <strong>and</strong> <strong>in</strong>ternational conferences. She is <strong>the</strong> author of scientific <strong>and</strong><br />

widely available analytical papers. Dur<strong>in</strong>g <strong>the</strong> last years, she has participated <strong>in</strong> three scientific<br />

projects, one of which is <strong>in</strong>ternational. Her ma<strong>in</strong> areas of <strong>in</strong>terest <strong>in</strong>clude <strong>in</strong>ternational economic<br />

relations, <strong>the</strong> activity of transnational corporation, <strong>in</strong>ternational competitiveness, <strong>in</strong>tegration<br />

<strong>and</strong> globalization, global economic problems, as well as tourism markets <strong>and</strong> hospitality. She<br />

has approximately 18 years of experience <strong>in</strong> manag<strong>in</strong>g a pharmaceutical company. Dr. Susanna<br />

Aghajanyan is actively participat<strong>in</strong>g <strong>in</strong> <strong>in</strong>ternational exchange programs <strong>and</strong> has held lectures at<br />

many European universities.<br />

susy_agadjanyan@yahoo.com<br />

Florence Ertel (formerly Reiter), M.A.<br />

University of Passau<br />

Florence Ertel (formerly Reiter) is Research Associate <strong>and</strong> PhD c<strong>and</strong>idate at <strong>the</strong> Jean Monnet<br />

Chair for European Politics, Director of <strong>the</strong> Science Hub for Europe (SHE) <strong>and</strong> Strategic Advisor<br />

to <strong>the</strong> University Vice-President for Europe at <strong>the</strong> University of Passau. She is member of <strong>the</strong><br />

Jean Monnet Network “<strong>The</strong> <strong>EU</strong> <strong>and</strong> <strong>the</strong> E<strong>EU</strong>: Between Conflict <strong>and</strong> Competition, Convergence<br />

<strong>and</strong> Cooperation” (<strong>EU</strong>CON). Previously, <strong>the</strong> tra<strong>in</strong>ed journalist worked <strong>in</strong> <strong>the</strong> onl<strong>in</strong>e editorial team<br />

of <strong>the</strong> Passauer Neue Presse. Her research <strong>in</strong>terests <strong>in</strong>clude European <strong>in</strong>tegration; external<br />

relations of <strong>the</strong> <strong>EU</strong>; foreign, security <strong>and</strong> defence policy; CSDP; strategic cultures; political<br />

communication <strong>and</strong> (onl<strong>in</strong>e) campaign communication; text m<strong>in</strong><strong>in</strong>g methods <strong>and</strong> web archiv<strong>in</strong>g.<br />

florence.reiter@uni-passau.de<br />

Albert Hayrapetyan, PhD<br />

Armenian State University of Economics, Yerevan<br />

Albert Hayrapetyan holds a PhD <strong>in</strong> Economics. He is a Senior researcher at <strong>the</strong> ‘Amberd’ Research<br />

Center of <strong>the</strong> Armenian State University of Economics <strong>and</strong> also an Assistant Professor at <strong>the</strong><br />

Chair of International Economic Relations <strong>in</strong> <strong>the</strong> Armenian State University of Economics. He<br />

also holds Master’s degrees from <strong>the</strong> College of Europe <strong>and</strong> <strong>the</strong> American University of Armenia.<br />

His ma<strong>in</strong> areas of <strong>in</strong>terest <strong>in</strong>clude <strong>EU</strong> politics, policies <strong>and</strong> polity as well as regional <strong>in</strong>tegration.<br />

He is <strong>the</strong> Research Coord<strong>in</strong>ator of <strong>the</strong> ‘’Restart’’ Foundation for Education <strong>and</strong> Science.<br />

Dr. Hayrapetyan is <strong>the</strong> author of 20 scientific articles <strong>and</strong> three collective monologues <strong>and</strong> was<br />

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a guest lecturer at <strong>the</strong> University of Applied Sciences BFI Vienna, <strong>the</strong> University of Gdansk, <strong>the</strong><br />

Poznan School of Economics <strong>and</strong> Bus<strong>in</strong>ess <strong>and</strong> <strong>the</strong> Corv<strong>in</strong>us University of Budapest.<br />

alberthayrapetyan@gmail.com<br />

Oxana Karnaukhova, PhD<br />

University of Passau<br />

<strong>The</strong> academic background <strong>in</strong>cludes BA History <strong>and</strong> Social Psychology <strong>and</strong> Ph.D. Cultural<br />

Studies. Her research focuses on regional <strong>in</strong>tegration dynamics, <strong>in</strong>ternational relations <strong>and</strong><br />

<strong>EU</strong>-E<strong>EU</strong> regional politics, global political economy. Credentials <strong>in</strong>clude a wide list of publications<br />

<strong>and</strong> leadership <strong>in</strong> <strong>in</strong>ternational projects, such as Memory <strong>and</strong> Securitization <strong>in</strong> European Union<br />

<strong>and</strong> Neighbourhood; Super-Diversity, Citizenship, <strong>and</strong> Integration <strong>in</strong> <strong>the</strong> European Union; <strong>The</strong><br />

Eastern Neighbourhood of <strong>the</strong> <strong>EU</strong>: Competition, Conflicts <strong>and</strong> International Bus<strong>in</strong>ess. Her<br />

most recent publication is Regional Economic Integration <strong>and</strong> Global Competition <strong>in</strong> <strong>the</strong> Post-<br />

COVID-19 Era: European Union, Eurasian Economic Union <strong>and</strong> Belt <strong>and</strong> Road Initiative. Hershey,<br />

PA: IGI Global (2022) (co-authored Shevchenko, D.).<br />

eu.ceusr@gmail.com<br />

Mag. Dr. Johannes Leitner, MA<br />

L&M PRISK<br />

Johannes Leitner is Manag<strong>in</strong>g Partner of L&M PRISK. He is a recognized expert <strong>in</strong> <strong>the</strong> fields<br />

of political risk management <strong>and</strong> bus<strong>in</strong>ess strategy with more than 15 years of professional<br />

experience. Hav<strong>in</strong>g led research projects on political risk management, Johannes Leitner served<br />

as an external advisor to <strong>the</strong> European Commission <strong>and</strong> is a recognized expert on political risk <strong>in</strong><br />

Eastern Europe, Turkey <strong>and</strong> <strong>the</strong> post-Soviet space. Johannes Leitner frequently leads expert <strong>and</strong><br />

academic panels at <strong>in</strong>ternational conferences, <strong>in</strong>clud<strong>in</strong>g, among o<strong>the</strong>rs, at Cambridge University.<br />

He received his PhD from <strong>the</strong> Vienna University of Economics <strong>and</strong> Bus<strong>in</strong>ess <strong>and</strong> graduated<br />

<strong>in</strong> International Bus<strong>in</strong>ess Studies at <strong>the</strong> Vienna University of Economics <strong>and</strong> Bus<strong>in</strong>ess <strong>and</strong> <strong>in</strong><br />

Sou<strong>the</strong>ast European Studies at <strong>the</strong> University of Vienna. In addition, he was a visit<strong>in</strong>g scholar at<br />

<strong>the</strong> Stockholm School of Economics. Johannes Leitner has also been <strong>in</strong>terviewed as an expert<br />

on political risk by, among o<strong>the</strong>rs, <strong>the</strong> Frankfurter Allgeme<strong>in</strong>e Zeitung <strong>and</strong> <strong>the</strong> Süddeutsche<br />

Zeitung.<br />

johannes.leitner@lm-prisk.com<br />

Dipl.-Pol. Dr. Hannes Meissner<br />

UAS BFI Vienna<br />

Dr. Hannes Meissner is academic coord<strong>in</strong>ator of <strong>the</strong> <strong>EU</strong>CON project at <strong>the</strong> University of Applied<br />

Sciences BFI Vienna. He is an <strong>in</strong>ternationally recognized expert on political risk analysis <strong>and</strong><br />

political risk management with a strong focus on <strong>the</strong> post-Soviet space of Eastern Europe,<br />

Russia, <strong>the</strong> South Caucasus <strong>and</strong> Central Asia. His academic research deals with state capture,<br />

80 Wirtschaft und <strong>Management</strong> · B<strong>and</strong> 33 · März 2023


<strong>in</strong>formal networks <strong>and</strong> practices, <strong>and</strong> <strong>the</strong> consequences <strong>the</strong>reof for MNEs <strong>and</strong> FDIs, such as a<br />

weak judiciary, <strong>in</strong>formal practices, expropriation <strong>and</strong> a low guarantee of property rights.<br />

Hannes.Meissner@fh-vie.ac.at<br />

David Morris, MBA<br />

Corv<strong>in</strong>us University of Budapest & United Nations Economic <strong>and</strong> Social Commission for Asia <strong>and</strong><br />

<strong>the</strong> Pacific (ESCAP)<br />

David Morris is a former Australian <strong>and</strong> multilateral diplomat, currently Vice Chair of <strong>the</strong> UN<br />

ESCAP Susta<strong>in</strong>able Bus<strong>in</strong>ess Network <strong>and</strong> member of a number of o<strong>the</strong>r <strong>in</strong>ternational boards<br />

<strong>and</strong> advisory committees. He is Research Fellow, Institute of Global Studies, Corv<strong>in</strong>us University<br />

of Budapest, where he is complet<strong>in</strong>g a PhD <strong>and</strong> a member of an Erasmus+ Jean Monnet<br />

Research Network study<strong>in</strong>g l<strong>in</strong>ks between <strong>the</strong> European Union, <strong>the</strong> Eurasian Economic Union<br />

<strong>and</strong> <strong>the</strong> Belt <strong>and</strong> Road Initiative. He has an MBA from Henley Bus<strong>in</strong>ess School <strong>and</strong> BA (Hons)<br />

from <strong>the</strong> University of Sydney.<br />

davidmorrisps@gmail.com<br />

Julian Plottka, Dipl.-Pol.<br />

University of Passau<br />

Julian Plottka is Research Associate at <strong>the</strong> University of Passau <strong>and</strong> <strong>the</strong> Rhe<strong>in</strong>ische Friedrich-<br />

Wilhelms-Universität Bonn. His research focus <strong>in</strong>cludes <strong>the</strong> <strong>EU</strong>’s external relations with Central<br />

Asia. He is member of <strong>the</strong> Jean Monnet Network “<strong>The</strong> <strong>EU</strong> <strong>and</strong> <strong>the</strong> E<strong>EU</strong>: Between Conflict <strong>and</strong><br />

Competition, Convergence <strong>and</strong> Cooperation” (<strong>EU</strong>CON). Before, he was senior researcher at<br />

<strong>the</strong> Institut für Europäische Politik (IEP) <strong>in</strong> Berl<strong>in</strong>, where he was package leader <strong>in</strong> <strong>the</strong> Horizon<br />

2020 project “Streng<strong>the</strong>n<strong>in</strong>g <strong>and</strong> Energiz<strong>in</strong>g <strong>EU</strong>-Central Asia Relations”. He coord<strong>in</strong>ated <strong>the</strong> PhD<br />

support programme “<strong>The</strong> <strong>EU</strong>, Central Asia <strong>and</strong> <strong>the</strong> Caucasus <strong>in</strong> <strong>the</strong> International System” <strong>and</strong><br />

<strong>the</strong> Master’s programme “Studies on <strong>the</strong> <strong>EU</strong> <strong>and</strong> Central Asia <strong>in</strong> <strong>the</strong> International System”, <strong>and</strong><br />

he advised <strong>the</strong> German Federal Foreign Office on establish<strong>in</strong>g a youth policy dimension <strong>in</strong> <strong>EU</strong>-<br />

Central Asia relations.<br />

julian.plottka@uni-passau.de<br />

Wirtschaft und <strong>Management</strong> · B<strong>and</strong> 33 · März 2023<br />

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Work<strong>in</strong>g Papers und Studien der Fachhochschule<br />

des BFI Wien<br />

2022 erschienene Titel<br />

Work<strong>in</strong>g Papers<br />

Work<strong>in</strong>g Paper Series No 112<br />

Johannes Jäger: Akkumulation, Regulation und Wohnungspolitik: Wege zu leistbarem und nachhaltigem<br />

Wohnen. Wien August 2022<br />

Work<strong>in</strong>g Paper Series No 113<br />

Stefanie Wöhl: Perspektiven auf Wohnen: Geschlecht, E<strong>in</strong>kommen, Migrationsbiografie im Kontext<br />

der Internationalen Fem<strong>in</strong>istischen Politischen Ökonomie. Wien November 2022<br />

2020 erschienene Titel<br />

Work<strong>in</strong>g Papers<br />

Work<strong>in</strong>g Paper Series No 110<br />

Michael Re<strong>in</strong>er: Der Report der High Level Group of Experts on Pensions der <strong>EU</strong>-Kommission:<br />

Impulse für die betriebliche Altersvorsorge <strong>in</strong> Österreich? Wien Dezember 2020<br />

Work<strong>in</strong>g Paper Series No 111<br />

Rol<strong>and</strong> Schuster / Jürgen Radel: Dokumentation des Teach<strong>in</strong>g Labs zum Lehrveranstaltungstyp<br />

Projektarbeit. Wien Dezember 2020<br />

2019 erschienene Titel<br />

Work<strong>in</strong>g Papers<br />

Work<strong>in</strong>g Paper Series No 105<br />

Harun Pačić: Rechtsethik des Daoismus. Wien März 2019<br />

Work<strong>in</strong>g Paper Series No 106<br />

Harun Pačić: Katholische Rechtslehre: Der Codex Iuris Canonici aus dem Jahr 1983. <br />

Wien März 2019<br />

Work<strong>in</strong>g Paper Series No 107<br />

Harun Pačić: Vergleichende Rechtslehre: E<strong>in</strong>führung <strong>in</strong> die Grundlagen der Rechtsvergleichung.<br />

Wien März 2019<br />

Work<strong>in</strong>g Paper Series No 108<br />

Andreas Nachbagauer / Iris Schirl-Böck / Edgar Weiss: Erfahrungen und Übertragungsmöglichkeiten<br />

von Human-Factors-Praktiken für den Umgang mit Unerwartetem <strong>in</strong> komplexen Projekten.<br />

Wien April 2019<br />

Work<strong>in</strong>g Paper Series No 109<br />

Harun Pačić: Europäische Demokratie: Der (Unions-)Begriff der Demokratie als Inbegriff der<br />

menschengerechten Rechtsstaatlichkeit. Wien August 2019<br />

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2018 erschienene Titel<br />

Work<strong>in</strong>g Papers<br />

Work<strong>in</strong>g Paper Series No 98<br />

Michael Re<strong>in</strong>er / Robert Horvath: Das neue europäische private Altersvorsorgeprodukt PEPP<br />

(Pan European Personal Pension Product) und se<strong>in</strong>e Marktgängigkeit im B<strong>in</strong>nenmarkt – E<strong>in</strong>e<br />

kritische Intervention. Wien Februar 2018<br />

Work<strong>in</strong>g Paper Series No 99<br />

Judith Brücker / Johannes Jäger / Andreas Nachbagauer: Regionale Headquarters late<strong>in</strong>amerikanischer<br />

Mult<strong>in</strong>ationals <strong>in</strong> Wien. Wien April 2018<br />

Work<strong>in</strong>g Paper Series No 100<br />

Andreas Bre<strong>in</strong>bauer / S<strong>and</strong>ra Eitler: Typologisierung der Headquarters <strong>in</strong> Wien im H<strong>in</strong>blick auf<br />

die Nachhaltigkeit. Wien April 2018<br />

Work<strong>in</strong>g Paper Series No 101<br />

Johannes Leitner / Hannes Meissner. Politisches Risikomanagement aus der Perspektive österreichischer<br />

Manager<strong>in</strong>nen und Manager. Wien Mai 2018<br />

Work<strong>in</strong>g Paper Series No 102<br />

Andreas Nachbagauer / Iris Schirl-Böck / Edgar Weiss: Vom Umgang mit Unerwartetem − Human<br />

Factors-Praktiken für ProjektmanagerInnen. Wien Dezember 2018<br />

Work<strong>in</strong>g Paper Series No 103<br />

Nathalie Homlong / Elisabeth Spr<strong>in</strong>gler: Impact of Ch<strong>in</strong>ese Mult<strong>in</strong>ationals on Global Labor Conditions<br />

<strong>and</strong> European Strategies. Wien Dezember 2018<br />

Work<strong>in</strong>g Paper Series No 104<br />

Andreas Bre<strong>in</strong>bauer / Judith Brücker / Johannes Jäger / Andreas Nachbagauer: Emerg<strong>in</strong>g Market<br />

Mult<strong>in</strong>ationals <strong>in</strong> Europe – Implications for a Smart Location Policy. Wien Dezember 2018<br />

2017 erschienene Titel<br />

Work<strong>in</strong>g Papers<br />

Work<strong>in</strong>g Paper Series No 93<br />

Andreas Nachbagauer / Barbara Waldhauser: St<strong>and</strong>ortkriterien zur nachhaltigen Ansiedlung von<br />

regionalen Headquartern. Wien Juli 2017<br />

Work<strong>in</strong>g Paper Series No 94<br />

Andreas Be<strong>in</strong>bauer / Johannes Leitner / Kathar<strong>in</strong>a Becker: Identifikation und Best Practice Beispiele<br />

für e<strong>in</strong>e nachhaltige St<strong>and</strong>ortentwicklung. Wien Juli 2017<br />

Work<strong>in</strong>g Paper Series No 95<br />

Edgar Weiss: Was das Projektmanagement von der Human Factors Foschung lernen kann –<br />

Möglichkeiten der Übertragung. Wien September 2017<br />

Work<strong>in</strong>g Paper Series No 96<br />

Gerhard Ortner / Iris Schirl-Böck: Erfolgreiches <strong>Management</strong> von Unsicherheit <strong>in</strong> Projekten.<br />

Wien September 2017<br />

Work<strong>in</strong>g Paper Series No 97<br />

Andreas Nachbagauer: <strong>Management</strong> des Unerwarteten: E<strong>in</strong>e organisations<strong>the</strong>oretische Sicht.<br />

Wien September 2017<br />

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2016 erschienene Titel<br />

Work<strong>in</strong>g Papers<br />

Work<strong>in</strong>g Paper Series No 88<br />

Rol<strong>and</strong> Schuster: Essentials of <strong>the</strong> course „Organisational <strong>and</strong> Group Dynamics“, Writ<strong>in</strong>gs on<br />

<strong>in</strong>tervention science, (Degree Program SHRM, 3rd Semester). Wien Mai 2016<br />

Work<strong>in</strong>g Paper Series No 89<br />

Roman Anlanger / Wolfgang A. Engel / Rol<strong>and</strong> J. Schuster: Gelebtes Corporate Social Responsibility<br />

<strong>in</strong> der Lehre. Wien August 2016<br />

Work<strong>in</strong>g Paper Series No 90<br />

Johannes Jäger / Bianca Bauer: Late<strong>in</strong>amerikanische Mult<strong>in</strong>ationals und ihre Transnationalisierungsstrategien<br />

– Investitionspotenzial für Europa/Österreich/Wien. Wien August 2016<br />

Work<strong>in</strong>g Paper Series No 91<br />

Andreas Bre<strong>in</strong>bauer / Johannes Leitner: Internationalisierungsstrategien und ADI-Dynamiken<br />

türkischer und russischer mult<strong>in</strong>ationaler Unternehmen mit Bezug auf Österreich/Wien. Wien<br />

August 2016<br />

Work<strong>in</strong>g Paper Series No 92<br />

Nathalie Homlong, Elisabeth Spr<strong>in</strong>gler: Ökonomische Ansätze zur Erklärung der Attraktivität<br />

europäischer Staaten für ch<strong>in</strong>esische Direkt<strong>in</strong>vestitionen. Wien August 2016<br />

Studien<br />

Roman Anlanger / Wolfgang A. Engel / Rol<strong>and</strong> J. Schuster / Gregor Weiche: Technischer Vertrieb<br />

Panelstudie 2016. Wien September 2016<br />

2015 erschienene Titel<br />

Work<strong>in</strong>g Papers<br />

Work<strong>in</strong>g Paper Series No 85<br />

Nachbagauer Andreas: Charakterisierung e<strong>in</strong>es Begriffes der sozioökonomischen Nachhaltigkeit<br />

für Headquarterst<strong>and</strong>orte. Wien April 2015<br />

Work<strong>in</strong>g Paper Series No 86<br />

Nachbagauer Andreas: Internationalisierungs<strong>the</strong>orien und sozioökonomische nachhaltige Entwicklung<br />

von Headquartern. Wien April 2015<br />

Work<strong>in</strong>g Paper Series No 87<br />

Johannes Jäger / Elisabeth Spr<strong>in</strong>gler: Eigentumsstrukturen, grenzüberschreitende Investitionen<br />

und Entwicklungsdynamiken. Wien August 2015<br />

Studien<br />

Roman Anlanger / Wolfgang A. Engel / Rol<strong>and</strong> J. Schuster: Technischer Vertrieb. Panelstudie<br />

2015. Status quo des technischen Vertriebs. Wien Juni 2015<br />

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2014 erschienene Titel<br />

Work<strong>in</strong>g Papers<br />

Work<strong>in</strong>g Paper Series No 83<br />

Jäger Johannes / Mader Kathar<strong>in</strong>a / Spr<strong>in</strong>gler Elisabeth: Zur Verknüpfung von postkeynesianischen<br />

und kritischen politökonomischen Perspektiven zur Analyse von Krisen. Wien Dezember<br />

2014<br />

Work<strong>in</strong>g Paper Series No 84<br />

Jäger Johannes / Spr<strong>in</strong>gler Elisabeth: Räumliche Rekonfiguration <strong>in</strong> Europa und Implikationen<br />

für Entwicklungsstrategien. Wien Dezember 2014<br />

Studien<br />

Roman Anlanger / Luis Barrantes / Wolfgang A. Engel / Rol<strong>and</strong> J. Schuster / Gregor Weiche:<br />

Technischer Vertrieb Panelstudie 2014. Wien Mai 2014<br />

2013 erschienene Titel<br />

Work<strong>in</strong>g Papers<br />

Work<strong>in</strong>g Paper Series No 79<br />

Kar<strong>in</strong> Brünnemann: <strong>The</strong> Strategic Importance of Intercultural Competency for Project Managers<br />

<strong>in</strong> <strong>the</strong> 21st Century. Wien Februar 2013<br />

Work<strong>in</strong>g Paper Series No 80<br />

Marcus Kliaras / Matthias Maurer: Spread Risk und Solvency II - Vergleich <strong>in</strong>ternes Modell vs.<br />

St<strong>and</strong>ardansatz. Wien März 2013<br />

Work<strong>in</strong>g Paper Series No 81<br />

Patrick Burger / Marcus Kliaras: Jump Diffusion Models for Option Pric<strong>in</strong>g vs. <strong>the</strong> Black Scholes<br />

Model. Wien Mai 2014<br />

Work<strong>in</strong>g Paper Series No 82<br />

Peter Sturm: Modelle, Normen und Methoden des Qualitätsmanagements und ihre Praktikabilität<br />

für die hochschulische Qualitätssicherung. Wien November 2013<br />

2012 erschienene Titel<br />

Work<strong>in</strong>g Papers<br />

Work<strong>in</strong>g Paper Series No 68<br />

Wolfgang Aussenegg / Christian Cech: A new copula approach for high-dimensional real world<br />

portfolios. Wien Jänner 2012<br />

Work<strong>in</strong>g Paper Series No 69<br />

Rol<strong>and</strong> J. Schuster: Aus der Praxis für die Praxis: Didaktik Best Practice aus dem Studiengang<br />

TVM. Praxisbeispiele zum LV-Typ Projekt(arbeit). Wien März 2012<br />

Work<strong>in</strong>g Paper Series No 70<br />

Björn We<strong>in</strong>dorfer: QIS5: A review of <strong>the</strong> results for EEA Member States, Austria <strong>and</strong> Germany.<br />

Wien Mai 2012<br />

Work<strong>in</strong>g Paper Series No 71<br />

Björn We<strong>in</strong>dorfer: Governance under Solvency II. Wien August 2012<br />

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Work<strong>in</strong>g Paper Series No 72<br />

Johannes Jäger: Solvency II. E<strong>in</strong>e politökonomische Perspektive auf die europäischen Regulierungen<br />

im Versicherungssektor. Wien August 2012<br />

Work<strong>in</strong>g Paper Series No 73<br />

Silvia Helmreich: Solvency II. Derzeitige und künftige Anforderungen an das Meldewesen der<br />

Versicherungen. Wien September 2012<br />

Work<strong>in</strong>g Paper Series No 74<br />

Christian Cech: Die Eigenmittelanforderungen an Versicherungen im St<strong>and</strong>ardsatz von Solvency<br />

II. Wien September 2012<br />

Work<strong>in</strong>g Paper Series No 75<br />

Christian Ste<strong>in</strong>lechner: Konzept zur Datenerhaltung für Forschungszwecke. Wien November 2012<br />

Work<strong>in</strong>g Paper Series No 76<br />

Alois Strobl: Immobilien<strong>in</strong>dizes als Zeitreihe und als Funktion makroökonomischer Variablen.<br />

Wien November 2012<br />

Work<strong>in</strong>g Paper Series No 77<br />

Björn We<strong>in</strong>dorfer: A practical guide to <strong>the</strong> use of <strong>the</strong> cha<strong>in</strong>-ladder method for determ<strong>in</strong><strong>in</strong>g technical<br />

provisions for outst<strong>and</strong><strong>in</strong>g reported claims <strong>in</strong> non-life <strong>in</strong>surance. Wien Oktober 2012<br />

Work<strong>in</strong>g Paper Series No 78<br />

Axel Zugschwert: Avatare und soziale Kompetenz von ProjektleiterInnen <strong>in</strong> globalen virtuellen<br />

Projektteams. Wien November 2012<br />

Studien<br />

Roman Anlanger / Luis Barrantes / Gerhard Karner: Vertriebscontroll<strong>in</strong>g. Wissenschaftliche<br />

Studie 2012. Status quo des Vertriebscontroll<strong>in</strong>g. Wien April 2012<br />

Rol<strong>and</strong> J. Schuster: Schriften zur Interventionswissenschaft. Organisationsform Hierarchie.<br />

Wien April 2012<br />

Elisabeth Kre<strong>in</strong>dl / Gerhard Ortner / Iris Schirl: Outsourc<strong>in</strong>g von Projektmanagement-Aktivitäten.<br />

Wien März 2012<br />

2011 erschienene Titel<br />

Work<strong>in</strong>g Papers<br />

Work<strong>in</strong>g Paper Series No 63<br />

Rol<strong>and</strong> J. Schuster: Zur Methode der psychoanalytischen Organisationsbeobachtung. Wien Juli<br />

2011<br />

Work<strong>in</strong>g Paper Series No 64<br />

Björn We<strong>in</strong>dorfer: Solvency II. E<strong>in</strong>e Übersicht. Wien August 2011<br />

Work<strong>in</strong>g Paper Series No 65<br />

Elisabeth Brunner-Sobanski: Internationalisierung und berufsbegleitendes Studieren. Wien<br />

August 2011<br />

Wirtschaft und <strong>Management</strong> · B<strong>and</strong> 33 · März 2023<br />

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Work<strong>in</strong>g Paper Series No 66<br />

Rol<strong>and</strong> J. Schuster / Anton Holik / Edgar Weiss: Aus der Praxis für die Praxis – Didaktik Best<br />

Practice aus dem Studiengang TVM – Teamteach<strong>in</strong>g. Wien Dezember 2011<br />

Work<strong>in</strong>g Paper Series No 67<br />

Grigori Feigu<strong>in</strong>e: Versicherungswirtschaft <strong>in</strong> Russl<strong>and</strong>. Chancen und Risiken der ausländischen<br />

Unternehmen auf dem russischen Versicherungsmarkt. Wien Dezember 2011<br />

Studien<br />

Elke Holzer / Rudolf Stickler: Die österreichische Versicherungswirtschaft. Struktur, Wirtschaftlichkeit<br />

und Entwicklung. Wien April 2011<br />

Elisabeth Kre<strong>in</strong>dl / Ina Pircher / Rol<strong>and</strong> J. Schuster: E<strong>in</strong> kritischer Blick auf die (Un)Tiefen des<br />

Begriffs Kultur im Projektmanagement. Wien Dezember 2011<br />

2010 erschienene Titel<br />

Work<strong>in</strong>g Papers<br />

Work<strong>in</strong>g Paper Series No 58<br />

Grigori Feigu<strong>in</strong>e: E<strong>in</strong>flüsse der <strong>in</strong>ternationalen F<strong>in</strong>anzkrise auf den F<strong>in</strong>anzsektor Russl<strong>and</strong>s.<br />

St. Petersburg 2010<br />

Work<strong>in</strong>g Paper Series No 59<br />

Johannes Jäger: Bankenregulierung <strong>in</strong> der Krise. Wien April 2010<br />

Work<strong>in</strong>g Paper Series No 60<br />

Günter Strauch: Gibt es Zwilligskompetenzen? Untersuchung 2010 mit dem KODE® System.<br />

Wien September 2010<br />

Work<strong>in</strong>g Paper Series No 61<br />

Elisabeth Kre<strong>in</strong>dl: Virtuelle Arbeitsumgebungen. Zukünftige Arbeitswelten von geographisch<br />

verteilten Projektteams? Wien Dezember 2010<br />

Work<strong>in</strong>g Paper Series No 62<br />

Ina Pircher: Motivationsfördernde Maßnahmen und Anreizsysteme für Projektpersonal an Hochschulen<br />

am Beispiel der Fachhochschule des BFI Wien. Wien Dezember 2010<br />

Studien<br />

Wolfgang A. Engel / Roman Anlanger / Thomas Benesch: Technischer Vertrieb. Panelstudie<br />

2010. Status quo des technischen Vertriebs. Wien Mai 2010<br />

88 Wirtschaft und <strong>Management</strong> · B<strong>and</strong> 33 · März 2023


Fachhochschule des BFI Wien Gesellschaft m.b.H.<br />

A-1020 Wien, Wohlmutstraße 22<br />

Tel.: +43/1/720 12 86<br />

Fax: +43/1/720 12 86-19<br />

E-Mail: <strong>in</strong>fo@fh-vie.ac.at<br />

www.fh-vie.ac.at<br />

ISBN 978-3-902624-70-3

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