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The ‘Stans’: What Now – part one

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World Cement,

In former times it was called the ‘Great Game’ when the Russian and British empires vied for influence in Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan (the ‘Stans’). For a decade, as observed in The Economist (July 2016), there has been a more complex battle for power and wealth in this fractious region. Today, the players are China, Russia and the West, and China is winning the contest.

Some facts

A reminder that Central Asia extends from the Caspian sea in the west to China in the east and from Afghanistan in the south to Russia in the north. The five independent republics that make up the region cover an area just under 3 million km2. This includes some of the most sparsely populated regions in the world, with a combined population of just over 68 million that includes over 100 different ethnic groups.

In September, the region was shocked to hear that Uzbekistan’s authoritarian leader, President Islam Karimov, had passed away having ruled the country for 27 years. The new leader will have the difficult task of ensuring that the delicate balance between the various ethnic groups is maintained. This in addition to the rise of Islamist militancy that continues to threaten the country and indeed the whole region.

Earlier this year, the Asian Development Outlook Supplement (ADO 2016) predicted that low global commodity prices, in particular for oil and natural gas, and the ongoing recession in the Russian Federation have dampened the growth outlook for the region. Aggregate growth projection for this year has been revised down to 1.7% from ADO’s earlier figure of 2.1%. This reflects weaker than expected performance in the sub-region’s major energy exporters this year. The growth forecast for 2017 is predicted to be 2.7%.

An examination of the individual countries by Focus Economics reveals that in Kazakhstan, the region’s largest country, oil prices have rebounded from the lows experienced earlier this year, (despite the impact of the Brexit vote in the UK), and there is an expectation that the production of oil and gas will increase followed by a rise in exports. In the first six months of 2016, Uzbekistan’s economic activity grew 7.8%. This was based on double-digit growth in the construction sector. Double-digit growth in the construction and industrial sectors in Tajikistan helped the country’s economy to grow 6.6% earlier this year. Negotiations between the government and the International Monetary Fund (IMF) are ongoing to secure a US$500 million loan to revive the economy and support the banking system.

The news from Turkmenistan and Kyrgyzstan is not so encouraging. In the former, the government has indicated that the GDP this year dropped from 9.1% in 2015 to 6.1%, suggesting that economic activity in this gas-rich country is remaining subdued. In the latter, the economy has contracted by 2.5% on the back of an output decline at the Kumtor gold mine. The mine operator is expecting output to increase as gold prices increase and Russia’s economy stabilises.

Eastern promise

In August 2016 the foreign ministers of the five Central Asian states met with US Secretary of State John Kerry in Washington. The meeting, dubbed C5+1, followed the inaugural session of the group in the autumn of 2015 in Samarkand, Uzbekistan. Kerry confirmed that this gathering was a “vital platform for action designed to protect our citizens, build shared prosperity and strengthen ties between us.” The six ministers agreed to launch five corresponding projects, which the US plans to support up to US$15 million (pending congressional notification).

Clearly, the United States is concerned about China’s increasing dominance and is hoping to open up new trade ties with Central Asia, in some sort of effort to counteract such dominance. After last month’s US election, it will be interesting to see if the new administration continues to build on this. It will also be aware that Russia is still the major guarantor of security in the region, even though its overall influence since 1991 has been gradually diminishing.

As well reported, in September 2013 China’s president Xi Jinping, speaking in Kazakhstan’s capital Astana, announced that his country’s intention to be a major player in Central Asia, and signifying the inauguration of the ‘Belt and Road’ vision. This venture, also known as The Silk Road Economic Belt (SERB) builds on China’s long-standing economic investment in the region. As in many other countries, China has long been a key driver of infrastructure investment and construction in Central Asia. It has invested heavily in the region’s natural resource extraction, with gas, oil, uranium, gold and copper making up key exports. Chinese companies have built roads, railways, tunnels, power lines and refurbished oil refineries as well as creating special economic zones.

An interesting assessment of the five former Soviet republics, published in The Economist (June 2016) under the title ‘Stans Undelivered’, mentions that Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan are members of the Shanghai Cooperation Organisation, a regional intergovernmental group promoted by China. The same quartet has joined the Asian Infrastructure Investment Bank, a Chinese-led international lender, as founding members. But while the region figures heavily in the SERB project, many ordinary Central Asians feel nervous about Chinese economic inroads. However, most business leaders and politicians encourage them. In fact, Djoomart Otorbaev, a former prime minister of Kyrgyzstan, was reported to have said, “I want Central Asia to get closer to China.” The assessment confirms that in the past decade China’s trade and investment have knocked Russia into second place. That said Russia, understandably, remains the pre-eminent influence. In all five countries, and twenty-five years after the split, Russian is still the common language and most people watch Russian television channels. It has been said many poorer locals are nostalgic for the former Union with comments such as, “we used to have jobs and factories and no goods in the shops, now we have goods but no jobs or factories.”

Russia has been trying to persuade the five countries to join the Eurasian Economic Union (EEU), reportedly a supposed counterbalance to the European Union (EU), and the collective Security Treaty Organisation (CSTO), an answer to NATO. Kazakhstan and Kyrgyzstan have joined the EEU and while it is claimed to have taken some trade away from China, it is more of a vehicle for Russian influence than a genuine free-trading bloc.

This is part one of a three-part article written for World Cement’s December issue and abridged for the website. Subscribers can read the full December issue by signing in, and can also catch up on-the-go via our new app for Apple and Android. Non-subscribers can access a preview of the December 2016 issue here.

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