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Kazakhstan & WTO: End of an Odyssey or New Leap Forward?

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Kazakhstan applied to join the World Trade Organization (WTO) in January of 1996. Twenty long years later (July 27, 2015), President Nazarbayev signed the official ascension documents in Geneva, making it the 162nd WTO member state.

While assessing the impact of Kazakhstan’s entrance into the WTO is difficult at this early stage, speculation is rampant given current geopolitical tension in Central Asia and the global price of oil. This article will attempt to contextualize this decision by adding insight to three questions – why, why now, and what’s next?

Why?

The WTO is an important stepping stone for legitimacy and integration on the world stage. To some, most notably Kazakh economist Aidarkhan Khusainov, WTO membership is more comparable to United Nations membership, simply providing an image boost, rather than a substantive change in Kazakh political economy. This diminished outlook is not the only position in Kazakhstan and around the world, however, as many believe that this move will open up Kazakh markets, allow for increased foreign investment, and diversify the largely energy-dependent and landlocked nation.

Regardless of economic prognostications, Nazarbayev’s signature ultimately formalized an already informal economic reality. As Nazarbayev himself said, “In the mid-1990s, Kazakhstan had ties only with post-Soviet states, while now we are trading with 185 countries of the world.” Kazakhstan’s elevated status into the WTO, therefore, is a bit more pomp and circumstance, and less substantive change, as much of the Kazakh economy has already been developed in the global arena for some time. Thus, WTO membership is more about affirmation of deeds already accomplished, than hope for potential development somewhere far off in the future.

Why Now?

Kazakhstan’s membership status in some ways could always be seen as a foregone conclusion. For example, more than 50% of the nation’s trade is with the European Union. WTO membership, therefore, is a continuation of a two-decade long process of real economic integration and reform, rather than a radical departure from it. The significance of ‘now’ is less about Kazakhstan’s economic reality and more about the potential geopolitical and economic challenges in the region.

First, the global drop in the price of oil has had a significant impact on the Kazakh economy. WTO membership will not only provide new opportunities for investment and economic diversification, but greater flexibility in global markets.

Second, U.S.-led sanctions on Russia have indirectly constrained Kazakhstan’s economy. Russia and Kazakhstan are more than trade partners, but members of the Eurasian Economic Union (EEU), which features Kazakhstan, Russia, and Belarus. Russia’s economic woes have negatively affected the strength of this union. Evidence of this from a political perspective is the renewed stress on WTO negotiations from both Kazakhstan and Belarus starting in 2013. Moreover, Russia has gradually shown a willingness to support these negotiations (Russia joined the WTO in 2012) rather than oppose them.

Third, the why now of this moment is representative of a broader desire for engagement in Central Asia, particularly between those global players with higher stakes in the region. We are far from a proliferation of cooperation, but recent events have shown an environment in cautious conversation and optimistic consideration. WTO membership does not magically transform enemies into friends, but it does pave the way for a more solid process of enhanced cooperation between Kazakhstan and many other nations.

What remains to be seen is whether this shift is more representative of the dynamism of the landscape or the individual states? In this case, will we see motivated regional cooperation or cooperation in lieu of state capacity for direct or unilateral action?

What’s Next?

Economic projections range from the optimistic (new investment and development) to the pessimistic (job loss, wage decrease, and simply being out competed) to the apathetic (WTO is more about banal prestige and less about workable policy). Any basic economic theory will show that increased free trade comes with benefits and drawbacks, where the effect on the state is ultimately determined by good governance. What is most clearly next is Kazakhstan’s opportunity to diversify economically and have that diversification feed into a new positive political evolution. If the country is able to broaden its economic capacity, then its membership in the WTO, at least in the short term, is a win, offering Kazakhstan an outlet from energy export dependence. If it is able to broaden that into real political (read: democratic) consolidation, then membership in the WTO will have proven far more invaluable than anyone could have surmised. These potential geopolitical ramifications and speculative regional suggestions are what should be seen as the truly fascinating, and still unknown mystery, of pending WTO ascension.

What Kazakhstan’s WTO entrance hopefully suggests is less contestation and more cooperation across Central Asian economies. The EEU can be seen as strong evidence of this. Until very recently, the EEU was a barrier for Kazakhstan’s entrance in the WTO. With Russia and Kazakhstan now WTO members, and Belarus poised to follow, the EEU (which is Russian-led), has shown a clear willingness to conform to global economic standards. The EEU is thus now operating within the parameters of the WTO. What remains to be seen is if there is a bigger or more politically-motivated strategy behind Russia’s cooperation. Put another way – how does this affect the regional economic strategy of Russia’s so-called privileged area of influence? Is Kazakhstan moving away from the regional fold and into independence (or interdependence) in the global market? I find it difficult to believe that Russia would passively allow the countries of what it considers to be its personal sphere of influence to integrate one by one into the global economy (a US and EU-led order) without also trying to achieve serious advantages or privileges for itself. This is not necessarily a bad thing. Indeed, it is quite a normal thing when considering international political economy. But there are both acceptable ways of achieving those advantages or privileges and non-constructive ways. In this case, a win for WTO liberal institutionalism is a sign that both sanctions and the regional economic landscape have limited Russia’s influence and ability to project power arbitrarily. Russia can either adapt to that reality and incorporate itself better into that changing landscape or problematically try to fight such change. Time will tell exactly how that plays out.

To turn to Kazakhstan’s strategic outlook, however, WTO membership represents not only a win for Nazarbayev’s ambitions, but for Kazakhstan’s potential as a serious player on the international stage. Being the strongest economy of the former Soviet states but also quite literally surrounded by great and regional powers, Kazakhstan has been unable so far to cast a long geopolitical shadow in any direction. I expect Kazakhstan to gradually fill this opportunity of potential by trying to expand its own capacity and in so doing drafting more of an independent, rather than subservient, strategy to its large imposing neighbor to the North. Hopefully, Kazakhstan will carve out that new role without incurring a heavy price militarily or in terms of new economic regional conflict. So congratulations, Kazakhstan, on the end of your 20-year odyssey. Here is to hoping a WTO with Kazakhstan turns into a win-win-win for all sides: Kazakhstan, Central Asia, and the global community.

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Central Asia

Transformation of Uzbekistan: How smooth transition in elite class is reshaping the country

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Within the nations of the former USSR, serious transformations are accompanied by distress – active power struggles, revolutions, and outbreaks of separatism. However, today, a country that has been squandering its potential for a quarter of a century is transforming in an uncommon way for the CIS – rapidly yet without political upheaval.

Reboot

The Communist party appointed Islam Karimov to run the Uzbek Soviet Socialist Republic back in 1990. After the Soviet Union collapsed, he retained power and strengthened his authority year after year, a common case for the post-Soviet republics in Central Asia. Karimov abandoned a state-planned economy, but he was otherwise cautious about making reforms and took an isolationist approach, which unquestionably had an adverse effect on the economy in the era of globalization.

After his death in 2016, a small ruling elite privately began to organize, resulting in the emergence of a new leader – former Prime Minister Shavkat Mirziyoyev. The subsequent presidential election, which Mirziyoyev won, only formalized his legitimacy. It seemed like a bad sign for those hoping for change, which was almost all of the 32 million citizens of Uzbekistan. And yet significant change is underway.

Awakening: but for how long?

The new leadership, despite emerging from the “Karimov elite,” seems to be doing everything the former president had opposed for years. A policy of relative openness and careful balance of exposure between the key centers of power, such as Russia, the USA, and China, has replaced isolationism. Mirziyoyev, who succeeded Karimov, did away with exit visas and he became one of the most well-travelled presidents himself. In the last couple of months alone, he has met with the leaders of Kazakhstan, Turkmenistan, China, Russia, and Pakistan, and attended the Arab-Islamic-American Summit as well as the Shanghai Cooperation Organization summit.

Until recently, Uzbekistan saw about zero foreign investment in its economy (0.1 percent of GDP, to be exact), but today it is seriously engaged in attracting foreign capital. A recent landmark example is the privatization of AO Urgench Exkavator, a large previously state-owned factory now owned by the Chinese. This was unthinkable in the previous era of economic isolation. The same goes for Uzbekistan’s agreement with Turkey on a $2 billion investment in agriculture.

Perhaps the biggest economic reform has been the deregulation of the foreign currency exchange market. Though Karimov’s Uzbekistan economy departed from Soviet policy, it maintained state control in one key area – the currency exchange rate. Under Mirziyoyev, the exchange rate of the national currency – the som – was left to be determined by the market. The reform immediately weakened its currency. However, it was still a crucial and beneficial long-term move for engaging in foreign trade and attracting investors.

There have also been reforms in taxation, the judicial system, and law enforcement agencies. Transformation is apparent almost everywhere. But we’ve seen good intentions remain intentions many times in many different countries. Could this end up being the case in Uzbekistan? Of course, it could. However, there are several important signs and trends that give Uzbekistan a chance for real, rather than declarative, transformation.

Tourism as an indicator

Tourism is a telling industry that shows the processes taking place across the country. Uzbekistan is fortunate in this area – it’s an exotic and cheap country with a fascinating culture, nature, and cuisine. Many well-preserved Muslim monuments serve as a great basis for “religious tourism.” Did the country live up to its potential as a tourist destination? Not fully. You could count on one hand the number of hotels that were able to comfortably accommodate foreigners. And paying with a card or exchanging money was a no-go.

The new leadership team has prioritized the development of tourism, and the country is actively filling the gaps in infrastructure (new hotels, bank branches, and means of transportation) and personnel (the new tourism university in Samarkand). Combined with economic reforms, first and foremost the deregulation of the foreign currency market, the first half of 2018 saw the flow of tourism increase by 91.6 percent compared to the same time last year, largely supported by the countries that were granted visa-free status.

Placing a bet on this industry, Uzbekistan is hoping for a multiplying effect and acting very sensibly. Tourism is a driver for other areas of business, such as restaurants, hospitality, and sightseeing, as well as internal logistics. Demand for construction materials, machinery, and utilities will grow to accommodate new construction. And the rise of these industries will create new jobs, stimulating consumption.

The new elite

Surprisingly, a new elite is taking form in parallel to the old one in a peaceful process. The old elite was very small and included only the former president’s family and associates. Today the elite is expanding, primarily as a result of business, the layer of society vitally invested in change.

Instead of struggling for the redistribution of resources, the new elite has taken the long route, searching out new opportunities and creating new niches to occupy without competing with the old elite – the Karimov era politicians and those closely connected to big state business.

The new business elite is gradually finding its way into the administration. In April this year, Dzhakhongir Artykhodzhaev, 42, the founder of the AKFA Group, was appointed as the hokim (mayor) of Tashkent – a business representative, rather than a government official. A German national, Karsten Heinz, was previously employed by the German Ministry of Education and Researchand assumed the role of Deputy Minister of Innovative Development in July. Such appointments, unthinkable in the past, speak volumes about the change in Uzbekistan.

So far the only area that hasn’t shifted significantly is democracy. For the first time ever Freedom House recorded a slight improvement in this area in 2017. But Uzbekistan is a country that needs to develop democratic procedures and independent media. Otherwise, the lack of these characteristics combined with inherited corruption and a lack of skilled professionals will delay its transformation process. Even so, for the first time in 25 years, Uzbekistan stands a good chance of changing. According to HSBC’s forecast (World in 2050 report) within the next 30 years, the country will rank among the 26 fastest growing economies in the world (meaning GDP growth will remain above 5% per year). If this scenario comes to pass, we will witness one of the most impressive transformations of a state and, perhaps, the most inspiring one among former Soviet Union countries.

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Uzbekistan and India Cooperation in the Sphere of Law and Justice

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“Cultivate the moral self, then regulate the family, rule the country rightly and make the world stay in harmony.” – Li Ji (The Book of Rites)

Strong relations between Uzbekistan and India is the result of mutual cooperation and cooperative diplomacy dating back to several decades.  From a historical perspective, there are frequent bibliographical references of Kamboja in Sanskrit and Pali literature, which is referenced to include parts of present-day Uzbekistan.  It is a cited fact that the Shakas participated in Mahabharata on the side of Kauravas. Ancient trade route uttar path, having its reference in Ramayana passed through Uzbekistan.  In later years, Fergana and Samarkand in Uzbekistan emerged as centres of trade on the trade routes linking India with Europe and China. India had close interaction with the Uzbek SSR during the USSR regime.  Indian diplomats and Heads of State often visited Tashkent to strengthen cultural and diplomatic bonds.  Bi-lateral relations between both the countries is also politically sensitive, because former Prime Minister, Shri Lal Bahadur Shastri passed away in Tashkent on 11 January 1966 after signing the Tashkent declaration with Pakistan and in August 1991, as the events leading to the disintegration of the USSR unfolded, President Islam Karimov, in his then capacity as Chairman of Supreme Soviet of Uzbekistan, was visiting India. Uzbekistan was declared independent on 1st September 1991.

A numerically small but vibrant and active Indian community resides in Uzbekistan. The bilateral relationship aims to maintain regular links with the community through its social media accounts, targeted emails, and invitations to Embassy events.  The Indian community actively participates in the celebration of the national days, International Yoga Day, Pravasi Bharatiya Diwas, Hindi Diwas, Holi, Diwali and cultural programmes on various occasions. These frequent interactions over thousands of years since 1947 contributed to close cultural linkages in architecture, dance, music and art. India’s soft power has travelled through borders to Uzbekistan, and it is evident from the fact that Indian movies and cuisine have traditionally been popular in Uzbekistan. Prime Minister Narendra Modi soon after his electoral victory visited Tashkent to discuss bilateral issues in 2015.  He visited Tashkent again in 2016 to attend Summit Meeting of the Shanghai Cooperation Organisation (SCO) during which India inked the Memorandum of Obligations for obtaining a status of the Member State of the SCO, of which Uzbekistan is a founding member. On 09 June 2017, India became a full-time member of the Shanghai Cooperation Organisation. The Regional Anti-Terrorist Structure of the Shanghai Cooperation Organisation (SCO-RATS) is headquartered in Tashkent and on 15 June 2017, the flag of India was raised at the SCO-RATS Headquarters in Tashkent.  India has been an active participant in SCO meetings and SCO-RATS events in Uzbekistan and other SCO countries.  Mr. P.P. Chaudhury, Minister of State for Law & Justice and Corporate Affairs, Government of India led a delegation to the SCO Justice Minister’s Meeting in Tashkent in October 2017.

Government to Government dialogues are managed through a robust mechanism including an Intergovernmental Commission, which oversees trade and economic relations and Foreign Office Consultations. Uzbekistan and India have previously signed Agreements/MOUs/ Protocols/Joint Statements in areas such as trade, investment, education, civil aviation, tourism, science & technology, telecommunications, agriculture and Information Technology.   By the end of 2018, the Union Cabinet chaired by Prime Minister Shri Narendra Modi approved the Memorandum of Understanding (MoU) between India and Uzbekistan on Cooperation in the Sphere of Law & Justice. The MoU is an all-comprehensive diplomatic agreement covering the exchange of experience by legal professionals, Government functionaries and their training and effective legal aid mechanism for resolution. The MoU will accelerate greater cooperation between India and Uzbekistan in providing legal services in both countries in the field of exchange of experience through training and information sharing visits between both countries on enhancing legal capacities of Government functionaries.

The present Government under Prime Minister Narendra Modi is practising a modern form of proactive diplomatic dialogue wherein there is tremendous focus on knowledge sharing areas in the field of law and policy. Strengthening the International law jurisprudence should be main focus of global economies striving for economic and societal progress. The MoU is also important from a diplomatic point for India as the Union Cabinet has also approved an agreement between India and Morocco on Mutual legal assistance in criminal matters. It will also fulfil the desire of both countries to strengthen the bonds of friendship and fruitful cooperation in the Civil and Commercial matters, which is the spirit, essence and language of the agreement. These dual agreements will enhance co-operation in the service of summons, judicial documents, letters of request and the execution of judgments decrees and arbitral awards.

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Tajikistan: Towards the Next Level of Development

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Today, Tajikistan finds itself at a juncture, where—with the right decisions taken—it could step onto a path of rapid socio-economic development, dynamic rates of inclusive growth, and significantly improved economic perspectives for its citizens. Many “foundational” investments, some with World Bank support, have been realized, not least those linked to the modernization of the country’s infrastructure and legal-institutional superstructure, allowing for a more effective delivery of public and social services. However, given the substantial changes that have occurred over the last 25 years, and which have built Tajikistan’s economy, policies that used to be appropriate in the past may no longer be effective in the future. Economic policy challenges have moved from a state-led focus on public infrastructure to the encouragement of private-sector initiative, investment, and innovation.

Throughout its history, Tajikistan has had to respond to a myriad of existential threats, from the civil war to increased politico-economic isolation along borders closed for reasons of politics and/or conflict, the global financial and economic crisis after 2008, or the sharp fall in prices of primary commodities after 2014. It was bequeathed an economic model that had collapsed under the weight of inefficiencies, amplified by a history that—with the demarcation of the Russian-Afghan border in 1895—had placed Tajikistan at the periphery of a larger state entity bereft of its economic base and home markets.

Still, Tajikistan has proven resilient, as reflected in impressive average annual growth rates of 7.3 percent during the post-conflict years. As a result, per capita income during 1998–2017 increased, net of effects from inflation, by more than 160 percent. There has been impressive success in resolving the winter shortages in energy supply, while—in many parts of the country—citizens benefit from tangibly improved water and transport services.

For the last quarter century (that is, for most of Tajikistan’s post-independence history), the World Bank Group has been privileged to support efforts to place the country’s economy on a sound footing and develop the foundation for a socio-economic (professional) perspective for the citizens of Tajikistan. It has done so through all three periods of the country’s development, from the civil war period to reconstruction and the responses to the various economic shocks affecting the country after 2008.

The Silver Anniversary of the collaboration between Tajikistan and the World Bank Group falls on the eve of a new era, with an opportunity for real, sustainable socio-economic transformation, a different set of challenges, and the need to adjust economic and development policies to a new environment. Rather than focusing on a domestic market of 9 million—mostly low-income—clients, which has proven too small a market for competition and sustained private-sector development, Tajikistan-based companies have the opportunity to access hundreds of millions of potential clients in the immediate neighborhood in South, Eastern, and Central Asia. All commodities and services, for which Tajikistan has a comparative advantage, whether it is food products, energy, minerals, cotton, textiles, or IT-based services, have deep markets nearby.

Already, Tajikistan is investing considerable national wealth to improve regional (or, rather, continental) connectivity and establish a stable export base, starting in energy. To be able to reap the full benefits inherent in very ambitious investments in energy generation and transmission, the country needs to pay particular attention to (i) investing in people (and preparing its mostly young citizens for the opportunities ahead); (ii) increasing the efficiency of (public) institutions; and (iii) providing the private sector with an environment that translates the opportunities into entrepreneurs’ confidence that private investments will result in improved productivity, company growth, and increased profits.

The inherent result of Tajikistan’s current remittance-financed, import-reliant economic model is a narrow private sector, with binding constraints to production, logistics, and innovation. If well-understood, the current economic structure might prove a “blessing in disguise” during a period in which there is high “in principle” demand for products and services “made in Tajikistan”. If economic policies are adjusted, with a view to permitting entrepreneurs and investors to develop sufficient trust in institutions and confidence in the future, they would complement public investments with private investments of the scale, scope, and quality to foster innovation, increase productivity of key sectors of Tajikistan’s economy, and increase wages and employment opportunities. By encouraging the private sector to import up-to-date technology, install modern equipment, and implement the highest standards, Tajikistan’s economy would be competitive, export-oriented, and provide profit opportunities for enterprises, irrespective of ownership.

As argued in the World Bank’s (2008) Growth Report, “economic miracles” are a misnomer. Dynamic rates of sustained and inclusive growth can be generated, as other countries have done before, by committed, credible, and capable governments that maintain macro-fiscal stability and allow the private sector to exploit opportunities in the world economy, support high rates of saving and investment, and permit markets to allocate resources. May Tajikistan, by the time of the Golden Anniversary of World Bank Group partnership, have shown the vision, courage, and determination to be included among the élite group of countries that have managed to transform their economies, and invest, innovate, and guarantee growth and prosperity to their people.

World Bank

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