Seventh-Kilometer Market in Odessa, welcome to the jungle

7th Kilometer Market is said to be the biggest market for wholesale and retail products in Europe. It’s located outside the city of Odessa, Ukraine. Traders, customers, market administration and police live by their own laws. This is a short and selective portrait of the market and its inner workings.

The market is seven kilometers long, an accumulation of ship containers that are used as shops. Sold items are cheap consumer goods such as shoes, textiles, chemicals, simple electronic devices and so on. All kind of non-food consumer goods can be bought there, except computers, usually for a lower price than anywhere else. There is a significant percentage of fake products, such as a Rolex, Swiss army knife or the latest Adidas shoes for USD 5 or less.

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Seventh-Kilometer Market, self-regulation by the law of the jungle

One source told that he was he was standing in front of a container full of weapons some years ago. He was offered a full arsenal including delivery to Western Europe (‘permission is no problem’). Other sources couldn’t confirm the trade of arms on the market.

Goods arrive in containers from Odessa port and are transported to the market, mainly imported goods from China or other Asian countries. Traders can ‘buy’ containers from other traders and register at the market administration. But the containers are not owned by traders, they must be rented from the market administration.

Renting a container is synonymous to the right of selling goods on the market. The purchase of containers is not possible (de facto). The practice of renting containers instead of buying them makes traders vulnerable to indiscriminate changes of terms of contracts (like price for the rent), confiscation of goods by police or additional bizarre ‘fees’ by the market administration.

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high up in the food chain, local police station

In a recent post, Oleksiy Chornyy’s describes the procedures in more detail. Middlemen (‘speculators’) rent the container officially for USD 100 a month and resell the space for USD 400 – 2’500 (‘in envelope’). This informal agreement between the middlemen and the market is in place since ten years. (Oleksiy Chornyy, August 8)

According to MP Peter Obukhov, “It’s not a very good situation. They [traders] don’t pay taxes. But if they will pay all taxes they have to pay by laws, they cannot work. There would be no profit.” (armedpolitics, August 9)

Traders are ‘rabbits’, they show little motivation in organizing themselves since they are competitors first of all. This is reinforced by a cultural aspect. The market is dominated by Chinese traders, they are said to prevent direct confrontations and therefore prefer to solve problems the most easy and common way – which is to pay. The amounts flowing this way are impressive and reflect the high volumes of deals done at the market. An indication for this are the cars in front of the local police station. A policeman’s salary is around USD 150 per month.

In the past, the market has been a hub for Asian products going to Ukraine and from there to Russian Federation and other countries of former Soviet Union (CIS). Since the conflict in the East of Ukraine, the annexation of Crimea and restrictions on cross-border trades, the market is in a crisis. Trade volumes imploded and many traders are losing money. While traders were selling a container full of goods per day in boom times with huge profits, they face net losses in theses times due to the absence of customers.

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closed shops due to the lack of customers, survival of the fittest

Additionally, the trader’s situation is tightened by the increased competition which consequently increases the need to pay bribes in order to face this competition. This has lead to the bizarre outcome that retail prices on 7th Kilometer Market are partly higher than prices in Odessa city center (Deribasovskaya street). An indicator for the crisis is the price for renting a container. Before the war, prices ranged between USD 1’000 – 5’000 per container and month depending on time and location. Now the rate declined to around USD 400 per month.

Next to the trade of goods, the market serves as informal financial center. The (black market) money exchange is controlled by Vietnamese traders who provide better rates than banks (and without commission). Depending on the amount, the exchange rate is USD/UAH 0.25 – 0.50 better than on banks and slightly better than on the ordinary black market in Odessa city. The Vietnamese money traders are one of the few sources in Ukraine to buy USD or EUR against UAH. (Although banks or official money changers provide exchange rates to buy foreign currencies, the supply is close to non-existing.) Vietnamese money traders do retail or are able to organize several millions USD or EUR in cash within hours. This is possible due to their ‘contacts’ to people sitting in offices of Ukrainian banks. Their services include money transactions of any thinkable amount and every place within minutes (comparable to the Hawala system in the Middle East or Africa).

The company which owns the market is said to be registered offshore and is affiliated with all kind of shady individuals. Moreover, Victor Kudlay, one of the company’s manager was recently was involved in a sex-scandal. A video shows him having sex with a young girl from Donbass “in exchange for loyalty of the management of the market.” (proua.com.ua, June 26, clip NSFW)

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Mikheil Saakashvili (the new governor of Odessa region) and his team are actively fighting corruption in Odessa region. They also make sure that this is perceived in the public. As far as we know, the administration made no serious move in order to extend the anti-corruption campaign to the Seventh-Kilometer Market. If this is correct, it is a lost opportunity for at least three reasons.

First, as long as the market faces a crisis, opposition to make processes more transparent is weak – compared to boom times when the money is flowing and will be used in order to finance resistance against reforms. Secondly, the administration is missing the opportunity to tax trades. Many traders are not aware that such sales taxes exist, not speaking of the legal procedures to pay them. Income from sales taxes could be used in the budget, instead of this the money is flowing into the shadow economy. Third, a decrease of fake products would increase potential exports to countries of the European Union which would contribute to the integration of the European market.

Saakashvili’s institutional power has its limitations and things to be done are manifold. Considering the significance of the market for the regional economy, fighting corruption remains a lip service if it stops in front of the gate of Seventh-Kilometer Market. Not speaking of the nature of services that must be provided to receive the loyalty of the men in charge.

(wf,yg)