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Central Asia Faces Economic Challenges


Energy-rich Central Asia is surrounded by the fastest growing players in the global economy. Some experts predict that the region could become a key trade and transit hub for Russia, China, India and the European Union. But they also caution that the five Central Asian states of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan are still struggling with the transition to free market economies.

After the collapse of the Soviet Union in 1991, much of the world was eager to tap Central Asia's abundant natural resources, which were underutilized and undeveloped during communist rule. But as Soviet markets and subsidies disappeared, the five newly- independent Central Asian states -- Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan -- plunged into recession and struggled with economic reform.

Since 2000, the economies of the region's five states have improved. According to the World Bank, economic growth rates have averaged between seven and eight percent a year. But the World Bank also points to different levels of economic progress and social welfare in these countries.

The Rankings

Kazakhstan has done the best. It was among the first to pursue economic reforms. Kazakhstan's per capita income of more than three-thousand-seven-hundred dollars is about eight times that of Kyrgyzstan or Tajikistan, which are still struggling with widespread poverty. Kazakhstan has the largest oil and natural gas reserves in the region. Its rapidly expanding oil industry has contributed to an annual economic growth rate of more than ten percent since 2000.

"Kazakhstan liberalized its economy and did invite foreigners and opened up for direct investment and went ahead with a pretty high degree of economic growth in the past years," says Gulnaz Sharafutdinova, a Central Asia expert at Miami University in Ohio. "The other comparative case to Kazakhstan is Kyrgyzstan that also liberalized its economy. However, it lacks natural resources and it didn't see such success. Turkmenistan hasn't reformed its economy at all and has sustained pretty much a state owned economy. Uzbekistan has private businesses, smaller businesses. But large sectors of the economy, large plants and the cotton sector, for example, are all state controlled. Countries like Tajikistan and Kyrgyzstan need to fight poverty."

Reforms Needed

Sharafutdinova says even Kazakhstan, the region's star economic performer, still faces serious challenges, including widespread unemployment and corruption.

Karl Meyer, a Central Asia expert at the World Policy Institute in New York, says the five Central Asian countries lag far behind acceptable norms in accountability and transparency. "The big problem that all of them face is a high degree of the use of bribery as a way of securing commercial favors. If you talk to businessmen who try to do business in any of these countries, they will role their eyes and talk about the difficulty they are in," says Meyer. "And I would say it is a very mixed record that you have. I would not want to wager very strongly that the benefits, particularly of capital investment, in these areas would trickle down to the common people."

Some experts contend that Kazakhstan, Turkmenistan and Uzbekistan are showing signs of what is often called the "resource curse" under which energy-rich nations risk developing unstable economies.

According to Oksana Antonenko, a Russia and Eurasia Program Director at the International Institute for Strategic Studies in London, "Those countries have become not really a model for development, which will create lots of small businesses that are very much in line with the traditional culture. They create big companies, which control the resources and a state as a kind of redistributor of rent that they receive from the export of gold, uranium or cotton. They need to seriously think about their economic development because if they do not completely support any diversification in the economy and creation of new jobs, they are going to create this very dysfunctional political model and very poor societies with a huge gap between the rich and poor."

Antonenko adds that in some Central Asian states, political elites control up to 80 percent of the economy. But she says the region is likely to remain the focus of many countries because of its large energy and mineral reserves.

Poised for Prosperity?

Johannes Linn, Executive Director of the Wolfensohn Center for Development at the Brookings Institution here in Washington, points to the region's strategic location. He says it is situated at that heart of a growing economic powerhouse. "If you look at the map today, you see it's surrounded by a rapidly growing China, the Indian sub-continent and Russia, which is in a rapid economic expansion. Europe, while not growing that fast, is still a major potential market and source of investment. You have the Middle East with its oil resources also doing extremely well these days. In the middle, you have Central Asia. With improved infrastructure, improved trade facilitation, Central Asia can be the hub for this rapidly integrating Eurasian super-continent."

Linn says Central Asian states need more than cohesive economic policies. They also need intensive regional cooperation to take full advantage of these opportunities. "The real question will be: 'How well do they use their natural resources, especially energy? How well do they maintain and further adapt their education systems to create a really strong, competitive workforce? And how well do they cooperate with each other and their neighbors to make sure they benefit from their location, which is now at the center of the most dynamic part of the world economy?'"

Linn, a former World Bank expert for the area, adds that the international community, including all of Central Asia's neighbors, shares a common interest in seeing it develop as a stable and prosperous group of countries.

This story was first broadcast on the English news program, VOA News Now. For other Focus reports click here.

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