The Steppe #14: When Life Gives You Lemons, Diplomacy and Tax Issues
Montfort Eurasia's newsletter covering Central Asia and the Caucasus
Hello, and welcome back to The Steppe, your newsletter bringing you the latest business- and investor-relevant happenings in the South Caucasus and Central Asia, brought to you by Montfort Eurasia. In this edition, we look at these key developments:
Armenia’s Diplomatic Watershed
Tajikistan’s Indoor Lemon Legacy
Kazakhstan’s Tax Dilemma
Kyrgyzstan’s Food Trade Evolution
Mongolia’s Investment Gambit: Opportunities and Obstacles
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Armenia Charts New Course with US Strategic Partnership
Earlier this year Armenia took a bold step toward redefining its geopolitical trajectory by signing a strategic partnership agreement with the United States. This agreement, signed on January 14, lays the groundwork for expanded trade, military cooperation, and political collaboration, signalling Armenia’s pivot away from its historical dependence on Russia. It reflects a larger strategic recalibration as Armenia seeks closer ties with Western allies in the aftermath of its 2020 defeat in the Nagorno-Karabakh War.
While the agreement does not include immediate security guarantees or changes in arms procurement policies, it focuses on "softer" measures—such as military reform, cybersecurity enhancement, and economic resilience. These elements, combined with the potential for future arms transfers and deeper military collaboration, mark a turning point in Armenia’s foreign policy strategy and its efforts to modernize key sectors.
However, this shift has not gone unnoticed in Moscow. Tigran Grigoryan, head of the Regional Center for Democracy and Security in Armenia, identifies one area likely to provoke Russian unease.
“Part of the agreement involves reforming Armenia’s border and customs services, with an eye toward replacing Russian personnel at the Armenian-Iranian border with Armenian staff. This could be a potential flashpoint for Moscow.”
Armenia's longstanding ties with Russia, built on economic and security alliances through the Eurasian Economic Union (EAEU) and the Collective Security Treaty Organization (CSTO), are under reevaluation. Following Armenia’s defeat in the 2020 Nagorno-Karabakh War, Armenia has begun seeking closer Western partnerships.
Trump's recent halt in foreign aid will not affect this agreement since security assistance falls outside the restrictions of the recent foreign assistance order. The order only applies to development programs, not military support.
Public reaction in Armenia has been mixed. Pro-Western groups view the agreement as a milestone, with some exaggerating its security implications. However, experts caution against such interpretations, emphasizing that the agreement is a framework for long-term collaboration rather than an immediate security guarantee. Pro-Russian factions express skepticism, viewing the partnership as a potential pivot away from Moscow’s influence, and something which may draw Russian ire.
Grigoryan advises against framing the agreement as antagonistic to any third party. He says,
"There are multiple countries with similar agreements with the U.S., so this is not something extraordinary. Both the Armenian government and the U.S. should manage expectations and clearly communicate the agreement’s purpose and limitations."
The success of the U.S.-Armenia strategic partnership will largely depend on the priorities of the new U.S. administration and key appointments within the State Department, particularly for European affairs. While there is optimism in Armenia that major obstacles will not arise, proactive efforts will be required from both sides to translate aspirations into actionable outcomes.
Lemons in the Highlands: Tajikistan’s Agricultural Breakthrough
Few places in the world can boast a thriving lemon industry, but Tajikistan has joined their ranks, turning this citrus crop into a driver of economic growth. This mountainous nation where 93% of the territory lies above 1,000 meters, is often neglected in discussions of global agriculture, has carved out a unique niche in citrus farming.
Historically, citrus cultivation in the Soviet Union was concentrated in Georgia’s subtropical Black Sea region, where the mild climate made outdoor farming the norm. Tajikistan, however, has made its mark by cultivating lemons indoors––an approach that sets it apart from other traditional outdoor-growing regions like Turkey and southern Europe. Today, over 5,300 hectares of citrus orchards, primarily greenhouses dedicated to the Meyer lemon variety, span the country. These greenhouses, often equipped with heating systems to mitigate the harsher climate, have proven essential to the industry’s success.
Experts estimate that Tajikistan has 6,000–7,000 hectares of foothill land suitable for lemon cultivation, with regions such as the Vakhsh and Gissar valleys, the Sughd region, and the Dangara district leading the way. Using innovative trench cultivation methods, farmers can yield 27–30 tons of lemons per hectare—or even up to 45 tons with multi-tiered planting techniques. Khatlon Province, particularly the Kumsangir district, exemplifies this potential, where 90% of the population engages in citrus farming, covering over 100 hectares of greenhouses.
The Tajik government’s Horticulture, Viticulture, and Citrus Development Program (2025–2029) aims to further support the citrus industry with plans to invest 691 million somoni, including 375 million in its initial phase. This funding will facilitate the adoption of advanced greenhouse technologies and expand export capacity. Notably, Tajik scientists pioneered trench cultivation methods for citrus in the country’s milder areas as early as the 1930s, highlighting the nation’s long-standing expertise.
Kazakhstan tries to balance both its books and business
Kazakhstan is trying to find ways to balance its books to fund ambitious social and infrastructure projects that will propel economic growth. But muted changes to the tax code have proven unpopular, and, and the reaction may be leading to more open conversation between the Government and the business community.
On January 28th, the Kazakh Government took business by surprise by suggesting dramatic hikes to VAT to plug holes in the state budget. The tax hike, from 12% to 20%, was outlined by Kazakh Deputy Prime Minister and Minister of National Economy Serik Zhumangarin, who stated that the new tax code would be in place by mid-2025, and integrated into the 2026 budget.
This is not the first time the Kazakh Government has taken on VAT. Last year, it shelved a plan at the last minute to hike the tax by 4% to 16%. With the law coming back to the table, the currently proposed rate change is accompanied by a substantial reduction in the VAT registration threshold, starting at 15 million tenge ($29,000) as opposed to 78 million tenge ($152,000).
The proposed changes are accompanied by other tweaks intended to encourage business lending, as well as promised hikes to social care and pensions, and a reduction in employment tax. Calculating that businesses themselves would only see an additional 4% tax burden, the Government bets that the changes will allow businesses to lower their production costs and boost their competitiveness both domestically and export potential.
Yet the changes have attracted significant pushback in Kazakhstan. By shifting the tax burden onto the consumer, critics say that it will both restrict the purchasing power of the average citizen and create a considerable inflationary risk. Businesses claim that it would, converse to government plans, stifle growth and competitiveness, and any change should focus on the inefficiencies of the current model, and working to combat those that evade tax altogether. A petition has been launched against the changes.
The intense negative reaction may, nevertheless, open the door to better coordination between the Government and business. On 7th February, the President held a high-level meeting, with the country’s top entrepreneurs to address their concerns and signal support. Responding to recent criticism he hinted at a softening of the Government’s approach stating “the VAT rate should be differentiated”. He doubled down on the Government’s commitment to growth by outlining a strategic goal to strengthen the economy and maintain and enhance Kazakhstan’s leading role in the region, with continued support for small businesses and entrepreneurs. He also to told legislators to work closely with the business community to develop a more balanced approach.
The government was quick to follow up on President's suggestions. One of the options, proposed by the government on 10th February, lowered the proposed rate from 20% to 16% and various exemptions were introduced
With the World Bank predicting a 4.5% growth rate in 2025, fuelled not just by traditional sectors of natural resources but also in the manufacturing, agriculture and services sectors, the Government will have to think carefully about how it continues to fuel growth and encourage FDI. Increased dialogue between legislators and the business community will aim find a more balanced middle path going forward.
Kyrgyzstan’s Quiet Trade Revolution
While most nations see their trade patterns evolve gradually, Kyrgyzstan has defied expectations with a striking and rapid transformation of its export landscape, particularly in the food sector.
Food trade globally has swelled over the past two decades, growing 350% between 2000 and 2021 to reach $1.7 trillion, according to UNCTAD. Today, food accounts for about 8% of total global merchandise trade, up from 6% in 2000. Within this booming market, China leads the pack in dried vegetable exports, valued at $3.24 billion in 2023. The United States is a distant second at $0.2 billion. While Kyrgyzstan’s role is modest by comparison, its evolving trade patterns showcase adaptability and untapped potential.
Between January to November 2024, Kyrgyzstan exported 141.2 tonnes of dried vegetables––a sharp decline from the 667.7 tonnes it shipped in the same period in 2023. Exports to Afghanistan ceased entirely, and shipments to Iraq dropped to 45.8 tonnes, down from 276.9 tonnes the previous year. Other key markets, like Turkmenistan and Ukraine, also saw significant declines.
However, Kyrgyzstan is pivoting. In 2024, the country broke into European markets, exporting dried vegetables to Germany (6.5 tonnes), France (1.3 tonnes), and Italy (0.1 tonnes). Exports to the United Arab Emirates rose to 47.8 tonnes, up from 37.1 tonnes in 2023, while sales to the Republic of Korea surged to 9.9 tonnes.
This strategic diversification of export destinations reduces dependency on a narrow set of trading partners. By expanding into European markets, Kyrgyzstan is aiming to position itself to withstand external shocks and ensure greater stability for local producers. Although its volumes remain small compared to giants like China and the U.S., Kyrgyzstan’s pivot represents a growing integration into the global food trade.
With the right investments and continued diversification, Kyrgyzstan could transform its modest foothold into a meaningful presence in global food exports, offering lessons in resilience and adaptability for other emerging markets.
Mongolia's Investment Crossroads
On January 17, 2025, French multinational Orano Group and the Mongolian government signed a landmark agreement in Ulaanbaatar to develop and operate the Zuuvch Ovoo uranium mine. This partnership signals Mongolia’s intent to position itself as a key player in the global resource market, with its wealth of untapped natural assets and its readiness to engage with international investors.
However, Mongolia continues to face challenges that might deter more foreign investment. The closure of General Electric’s Ulaanbaatar office highlighted stubborn obstacles including bureaucratic red tape, regulatory unpredictability, and sluggish dispute resolution mechanisms. Additionally, Mongolia’s position in global corruption indices has seen little improvement in recent years.
The American Chamber of Commerce in Mongolia (AmCham) has noted certain restrictions that discourage foreign businesses. For instance, foreign investors must commit a minimum investment of $100,000 to establish ventures—a requirement that doesn’t apply to local enterprises. While land ownership is limited to Mongolian citizens, foreign investors are eligible for renewable use rights, offering some access to vital resources.
Despite these hurdles, Mongolia enjoys significant advantages - a strategic location and an abundance of natural resources, from mining to renewable energy, present immense opportunities for investment. The Orano deal is just one example of what’s possible. Furthermore, the government has shown a willingness to improve the investment climate by pursuing reforms that promote transparency and taking steps to cut red tape.
Stat of the Month
78.6%: A recent social survey reveals that while Kazakh families are shifting away from certain matrimonial traditions including expensive weddings, the popularity of practices including dowries remains high.
The Kazakhstan Institute of Public Development (KIPD) conducted a study on intergenerational interaction, interviewing 31 people across six major cities. The research found strong public support for traditional practices, including kalyn mal (bride price), dowry, and the elders' privilege to name the firstborn child. According to their findings, 55.3% of respondents consider traditions vital for family prosperity, while 72.1% support bride price customs and 78.6% favor dowry traditions.
The study also found that 75.9% support parents choosing first-born children's names, and 77% believe the youngest son should reside with parents.
What We’re Reading
In Doha, Central Asian Artists Dismantle Orientalism, Naima Morelli, The Times of Central Asia