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Great game in Central Asia: Rivalry persists

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On October 19, Russia’s President Vladimir Putin visited Uzbekistan. According to media reports, Moscow and Tashkent focused on “prospects for further strategic partnership,” cooperation in military technology, and economic ties between the two countries. Moscow is investing billions of dollars and is planning to open more branches of top Russian universities in Uzbekistan. On the same days, October 17-19, Tashkent played host to the VIII Central Asian Trade Forum, organized by the United States Agency for International Development (USAID). As they spoke at the event, the US representatives announced Washington’s interest in providing duty-free access to its domestic market for several thousand products from Central Asian states. This approach reflects the policy of bilateral cooperation which the two parties agreed upon during a visit of the President of Uzbekistan Shavkat Mirziyoyev to the United States in May this year, which resulted in $ 4.8 billion contracts.

Central Asia has been a zone of geopolitical rivalry between the world’s top players for centuries. Even when the main part of this territory was part of the USSR, the USA, China and other countries tried to influence the Soviet “soft underbelly”. After 1991, the region quickly moved to the sidelines of the military-strategic interests of Moscow, Beijing and Washington . At present, the three powers are concerned about the threat of Islamic extremism and an increase in drug trafficking in the region. While sharing the same concerns, the parties interpret the causes of these threats in different ways. In general, regional competition of external powers is moderate, being visible mainly in the economic sphere. For now, two integration projects are developing at fast pace in Central Asia – the Eurasian Economic Union (EEU), promoted by the Russian Federation, whose members are Kazakhstan and Kyrgyzstan, and the Chinese Silk Road Economic Belt (SREB), targeted at all Central Asian countries. In the mid-2010s, the United States unveiled its conceptual vision of the future of the region — the New Silk Road Initiative, which, however, has not yet seen any substantial progress.

At present, countries of the region are pursuing the policy of building secular national states. Searches for national identity in the values of Islam or Pan-Turkism is a thing of the past. Meanwhile, for a part of the population, religious principles still prevail over the national and civil ones. Also, there are a number of other challenges to the stability and security of the region. Russian International Affairs Council experts say that political institutions are weak, the economy is poorly diversified, heavily corrupt, hinging largely on “shadow” schemes and smuggling. Social and economic problems, disputes over the distribution of water resources, and inter-religious and inter-ethnic conflicts are acute. On top of all this comes the rapidly aggravating problem of uneven economic development of  countries. The main external threats are proximity to Afghanistan and the Middle East with a high degree of border penetrability.

In general, the ruling circles of the states of the region are trying to maintain power and property and evade serious socio-economic upheavals. The financial and economic interests of the elite are largely oriented at the West. However, the current challenges to domestic and regional stability, as well as the nature of the existing regimes, are what scares Western investors the most. As a result, countries of Central Asia are drifting between globalization and regionalization, between economic projects that benefit primarily the elites themselves, and the need to guarantee an increase in the living standards of wide sections of society,  “between efforts to preserve a niche in the “old” world economy and secure niches in the “new” one”.

Over the past few years, Russia has been promoting its interests in the region within the framework of the CSTO, the EAEU and the Customs Union. Until recently, the majority of projects with the participation of Russian investors were concentrated in the oil and gas sector. Meanwhile, representatives of local elites and business communities would prefer to see Russian investments in the energy sector, in the creation of cross-border “transit transport routes.” There is a high demand for projects that would develop interstate economic cooperation within the framework of the EEU, and projects whose products would be oriented at markets beyond the post-Soviet space. These areas include the military industry, the mining sector, and the supply of agricultural products. At the same time,  experts point out “excessive” “coordination and regulation of economic relations” within Russian regional initiatives.

Nevertheless, Russia maintains a significant potential to secure its economic influence in the region. Most enterprises and agricultural facilities in Central Asia date back to the Soviet days and most of the infrastructure, railways and highways are focused on Russia. The Russian media are popular in the region, supporting the idea of stability and sovereignty. Until early 2010s, the “Soviet legacy” enabled the Russian Federation to remain a major economic partner for all the Central Asian countries. However, in recent years, Moscow has been losing its leading economic position to China, mainly, for lack of investment.

China’s rapidly growing economy requires more and more resources. Given that Central Asia is rich in oil, gas, minerals and cotton, Beijing has been trying to promote economic projects in the region since the early 2000s. At the end of 2017, trade turnover between China and countries of Central Asia reached $ 30 billion, whereas trade between Russia and the region was less than two thirds of this figure. China overtook Russia in trade with all countries in the region, except Kazakhstan. Now, China is pursuing multibillion-dollar projects in transport and pipeline infrastructure as part of the strategy of the Silk Road Economic Belt (SREB), and is increasing investment in industrial facilities and joint ventures. There are plans to build three railway corridors: between the Chinese port of Lianyungang and Kazakh Almaty, and two between the south of China and Central Asia. By the end of 2017, the Chinese investments in Central Asia had exceeded $ 100 billion. Investment plans until 2030 are estimated at several hundred billion dollars.

Meanwhile, according to most Western analysts, Russia and China have been pursuing a coordinated and well-balanced policy of extensive cooperation in Central Asia. China has been focusing on economic projects in the region, while Russia, besides the economic sphere, has taken the lead in ensuring military and anti-terrorism security and regional stability. According to Western estimates, Central Asia has been picked by Moscow and Beijing as number one site to practice strategic interaction, which can then be used in other parts of Eurasia. This cooperation hinges on an agreement reached by the Russian Federation and the People’s Republic of China at top level in 2015 on integration between the EAEU and the SREB. The economic role of the Shanghai Cooperation Organization is also expected to increase after Kyrgyzstan assumes the SCO presidency in 2019. Both countries are fully aware of the strategic mutual benefit from participation in these projects and neither pursues economic or regional security initiatives that could be detrimental to the other party.

In 2011, Washington launched the New Silk Road Strategy (NSR), which initially focused on the economic revival of Afghanistan through its integration into regional development projects. In autumn 2015, as the US Secretary of State, visited all five Central Asian countries in the course of his first tour, the Samarkand Declaration was adopted to promote the New Silk Road, which declared the widest possible range of areas of cooperation between the United States and countries of the region. Gradually, the United States began to shift from the still idealism-ridden policy of supporting the “development of democracy” in Central Asia towards a more pragmatic course, aimed at reducing the influence of the Russian Federation while simultaneously moderating the presence of China.

So far, the extent of the Trump administration’s interest in Central Asia is uncertain. It looks like the United States is ready to encourage local authorities to “soften” domestic policies, including on the expansion of international contacts, by boosting economic assistance and cementing ties between representatives of the business community. In particular, moves of this kind have been reported to come from the USA in the direction of Uzbekistan and Kazakhstan. USAID enjoys a significant influence on public associations in Kyrgyzstan, Kazakhstan and Uzbekistan. As for region-wide economic projects under the patronage of the United States, most of them are stalling, because they are made dependent, to this or that extent, on stabilization in Afghanistan.

Another important tool for strengthening the US positions in the region after 2001 is the promotion of a counter-terrorism agenda, a military presence, primarily in Afghanistan, and the development of military and defense ties with the Central Asian states. Preventing the spread of radical movements in Central Asia meets the interests of both Washington and all countries of the region.

In the meantime, the interests of Central Asian countries spread beyond the bounds of financial assistance and economic cooperation as they are unequivocally making it to understand that they are looking for new partners and security guarantors capable of balancing the United States, Russia and China.

This encourages countries of Central Asia to develop contacts with a whole range of external players that have noticeable interests in the region. The influence of the European Union in Central Asia decreased, after the promising projects of the previous decades fell through. EU experts argue that the Union lacks the resources to compete with Russia and China. Therefore, they call for “focusing on specific projects” that would contribute to raising the living standards across a wide section of society. As for China’s SREB initiative, the EU sees it as a significant destabilizer, given the insufficient involvement of local, particularly human, resources, and a dramatic increase in Central Asia’s political and debt dependence on Beijing. Therefore, the EU is seeking to “fit” “into the current situation with a view to influence further developments from within.”

Since 2012, Japan has been stepping up its political efforts in Central Asia. As he visited the region in 2015, Prime Minister Abe signed $ 27 billion agreements, including on cooperation in the fuel and energy sector, in infrastructure projects, and in measures to combat terrorism and extremism. While doing this, Japan reiterates its readiness to maintain extensive ties with other powers, including Russia, China and Turkey. The latter persists in its claims to play a leading role in Central Asia, nurturing ambitions to become the leader of the Turkic world. However, Ankara’s positions have suffered a blow in recent years. President Erdogan has faced a lot of criticism for not providing enough support for the Turkic communities in Russia and in the west of China.

Thus, the leading circles of the Central Asian countries are pursuing a “purely pragmatic” policy. Among the priorities are structural economic reforms, attracting more investments, primarily to the production sector and high-tech industries, and the development of “human capital.”  As global players demonstrate renewed interest in the region, Central Asia has an option to pursue an increasingly varying and multi-vector policy. In spring this year, Uzbekistan and Kazakhstan made a bid to form a community of five Central Asian states without participation of external powers. At last, the transformation of Central Asia is taking place against the background of the arrival of a relatively new generation of leaders, fewer and fewer of whom see Moscow as a major historical partner. Given these conditions, Russia, if it wants to maintain its positions in Central Asia, ought to devise new approaches to regional policy. In our opinion, a strategy that should take center stage in Central Asia in the near future is one that would provide countries of the region with an economic cooperation agenda that does not require a clear geopolitical choice.

First published in our partner International Affairs

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Central Asia

EAEU at 5: A long way to full integration?

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The year 2019 will the mark the five-year anniversary of the Treaty on the Eurasian Economic Union (EAEU) and 25 years since the idea of Eurasian integration was first pitched in 1994 by Kazakh President Nursultan Nazarbayev. On May 29, Kazakhstan’s current President Kassym-Zhomat Tokayev was meeting in the capital Nur-Sultan with his Russian counterpart Vladimir Putin on the fringes of an anniversary meeting of the Supreme Eurasian Economic Council.

Notably, the Commission on Cooperation between the upper house of the Russian parliament, the Federation Council, and the Kazakh Senate, has been working for more than seven years now.

“[The Commission] handles issues of cross-border cooperation, issues that can be effectively addressed by our MPs,” Oleg Tsepkin, a member of the Federation Council’s Committee on Constitutional Legislation and State Building, and of the Commission on Cooperation between the Federation Council and the Kazakh Senate, said during a Moscow – Nur-Sultan television linkup discussing “EAEU interaction and Russian-Kazakh relations.”

According to Oleg Tsepkin, during a May 24 Commission meeting in Almaty, Kazakhstan, Russian and Kazakh senators discussed measures of digitalizing oversight and supervisory  activities, exchanged views and expertise, and reviewed the youth policy of Kazakhstan and Russia.

“There are many things being done in Kazakhstan that we could emulate, including digitalization of official oversight and supervision work,” Oleg Tsepkin noted.

When describing the situation current existing within the EAEU, Murat Laumulin, chief researcher at the Kazakhstan Institute for Strategic Studies, pointed to numerous hurdles hampering trade between member-countries, above all in border areas. He added that, as evident from the EU experience, the main problems still lie ahead, especially when it comes to the issue of a single currency. He emphasized, however, that within the EAEU economic issues prevail over politics.

“This is something all members of this integration association fully agree on,” Laumulin noted.

Echoing the expert’s opinion, Alexander Gusev, director of the Institute of Strategic Planning and Forecasting, and senior researcher at the Russian Academy of Sciences’ Institute of Sociology, said that the EAEU’s focus now is more on regulatory and economic issues, rather than political ones.

“The political component will obviously prevail in the future, since the EAEU was created with an eye to the future and the full integration of the post-Soviet states. Full-scale integration is still way off though,” Alexander Gusev emphasized. He believes that the Union is absolutely capable of  solving the problems it is facing today, despite what is going in the post-Soviet countries and tensions with the West, especially the sanctions pressure on Russia and Belarus. Alexander Gusev also said that at their upcoming summit, the EAEU leaders are going to sign a number of agreements with non-member states.

“Some of these agreements will be discussed and are most likely to be inked as part of the Union developing ties with China, the United States and the EU member-states,” Alexander Gusev noted.

Zhumabek Sarabekov, an expert with the Institute of World Economy and Politics under the Foundation of the First President of the Republic of Kazakhstan, believes that as the phase of the rapid integration of the post-Soviet countries is almost over now, there is a growing need for improving the quality of integration institutions, which calls for complex and compromise solutions. Still, all EAEU members have a vested, strategic interest in promoting the process of Eurasian integration.

 Zhumabek Sarabekov underscored the need for intensifying work to facilitate the member-countries’ access to the common market.

“The EAEU countries tend to better protect their domestic markets, with each member widely applying non-tariff restrictions,” the expert emphasized. According to EEC statistics, at the end of March 2019, there were 71 hurdles existing in the EAEU single market, 11 up from just two years ago. All this meaning that each country is trying to protect its producers and its domestic market. According to Zhumabek Sarabekov, Russia is high on the list of EAEU countries with the greatest number of barriers erected on the way of mutual trade.

The expert singled out industrial cooperation as another thing that deserves serious attention.

“One of the objectives pursued by the EAEU is the creation of common production chains, which will eventually help unlock the industrial potential of each member of the Union. However, the rate of cooperation in the real sector remains pretty slow,” Zhumabek Sarabekov added.

The situation is exacerbated by bilateral contradictions between EAEU members, including Russia and Belarus, which often dominate the EAEU agenda.

Zhumabek Sarabekov underscored the need for a further expansion of the EAEU, both institutional (creation of common markets, a single currency) and geographic. However, this process should not be rushed.

“As we have seen, the inclusion of still unprepared new members into the EAEU has led to numerous problems. We should have in mind just how the new entrants are economically ready for this,” he added.  

According to Yelena Kuzmina, who heads the sector of Belarus, Moldova and Ukraine at the Center for Post-Soviet Studies of the Yevgeny Primakov National Research Institute of World Economy and International Relations of the Russian Academy of Sciences, with the primary effect of the countries’ entry into the EAEU almost exhausted now, the situation calls for greater integration within the Union.

“The EAEU provides great opportunities for its member-countries in economic production, trade, and, to a degree, in transit, which significantly contribute to their economic potential. What worries Russia the most, however, is the variety of administrative, non-tariff restrictions,” Yelena Kuzmina noted.

When discussing the priority areas of cooperation within the EAEU, experts mention the digitization of the economy, the reduction of trade barriers, raising the quality of trade relations, the labeling of goods, as well as introducing changes to the EAEU Treaty and the customs code agreement. Energy regulation, above all in the area of nuclear power generation, is a big priority for the Union. According to Alexander Gusev, Russia has offered to build a nuclear power plant in Kazakhstan, which by 2030 will start experiencing serious shortages of energy. He added that Kazakhstan is one of the world’s three leading producers and processors of uranium with an annual production of 24,000 tons. There are six joint Russian-Kazakh uranium extraction and enrichment companies currently operating on the territory of this former Soviet republic.

“The volume of enriched uranium [Russia] is getting from Kazakhstan is large enough to keep our nuclear reactors running,” Alexander Gusev concluded.

From our partner International Affairs

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Central Asia

Economic integration: A driving force for sustainable development

Armida Salsiah Alisjahbana

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Leading thinkers from the world over gather at the Astana Economic Forum this week. Their focus is on the United Nations 2030 Agenda for Sustainable Development, and how it should shape long-term economic growth and social development strategies in Kazakhstan and central Asia. As international best practice and practical solutions are considered, one longstanding objective must remain in our sights: deepening economic integration between central Asia and the broader region. This is a key means of accelerating progress towards the Sustainable Development Goals. Kazakhstan, with its experience of reforming and modernizing its economy, mainstreaming sustainable development and successfully attracting foreign direct investment, has a major contribution to make.

This contribution is important as our analysis demonstrates the region must significantly strengthen its effort to achieve sustainable development. Progress in Asia and the Pacific has been made towards eradicating poverty and providing universal education. Measures are underway to achieve affordable clean energy. Yet on its current trajectory, the region needs to do more to achieve all 17 Sustainable Development Goals. This includes Central Asia, where action is needed to improve gender equality, build sustainable cities and communities and achieve decent work and economic growth – Sustainable Development Goal 8. Regional economic integration will be a key part of the solution.

Kazakhstan has demonstrated its commitment to achieving this goal over time, despite the financial and economic crises in international markets by which it has been affected. The digitalization of the economy and public life is underway and key programmes such as the ‘Business Roadmap’ or the ‘Employment Programme’ are being implemented. Deeper economic integration supported by improved transport infrastructure and trade facilitation measures across the North and Central Asia would support Kazakhstan’s 2050 strategy designed to achieve annual sustainable growth and a diverse knowledge economy. It would also deliver the economic diversification necessary for more equitable distribution of wealth in the subregion.

Today, trade between North and Central Asian countries accounts for only 8 percent of its exports, much less than other parts of Asia and the Pacific. The region’s exports are concentrated in low-value added commodities and the foreign direct investment it attracts focused on natural resource exploitation. Many countries’ landlocked positions make trading particularly costly, weighing heavily on competitiveness. To overcome these challenges, both hard and soft infrastructure is needed.

Starting with the hard infrastructure, transport in particular, there are firm foundations on which to build. The UN backed Asian Highway Network has supported the development of efficient road infrastructure, Euro-Asia transport links and improved access to maritime routes. ESCAP support to Dry Ports improves the transport and logistics systems needed for the efficient shipment of sea cargo to inland destinations by road or rail. The Kazakh-Chinese logistics terminal in the port of Lianyungang, the Aktau, Bautino and Kuryk seaports, and the Khorgos-Eastern Gate dry port on the border with China all contribute to deepening regional integration. As does the newly opened Kazakhstan-Turkmenistan-Iran railway line connecting Central Asia to the Persian Gulf, providing much needed access to the sea.

Yet to make the most of this hard infrastructure, we need to focus on the softer elements as well. We must eliminate non-tariff measures and restrictive rules of origin, which weigh on trade and foreign direct investment. ESCAP is mapping the impact of non-tariff measures on intra-regional trade and helping strengthen governments’ capacity to lessen their impact. Automating trade, transit and investment procedures would also help. The electronic exchange of trade data and documents between the North and Central Asia could reduce trade costs by 25 percent. A United Nations treaty to facilitate cross border paperless trade in Asia and the Pacific has recently been agreed for this purpose. In North and Central Asia, Armenia and Azerbaijan have signed and acceded. I hope that more countries in the region will follow suit to maximize the treaty’s benefits.

A sustainable future for countries in North and Central Asia will depend at least in part on a sustainable approach to transport infrastructure and trade facilitation. More hard infrastructure projects, consistent norms and standards, and harmonized legislative frameworks are needed so that companies can sell into new markets, expand and create jobs. ESCAP is committed to supporting the intergovernmental work needed for such integration to occur, working with sub-regional organizations such the Eurasian Economic Union and the Shanghai Cooperation Organisation. Kazakhstan’s position on the Eurasian continent means it is well placed to help drive this agenda forward. I am looking forward to joining forces with Kazakhstan’s leadership to deepen economic integration and achieve sustainable development by 2030.

UNESCAP

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Central Asia

How Will Uzbekistan Become A Regional Transit Hub?

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On 5th April of 2019, a meeting of the railway authorities of Kazakhstan, China, Iran, Turkmenistan, and Uzbekistan took place in Almaty dedicated to advancing cargo traffic along the North-South Transit Corridor. In fact, the participation of Uzbekistan in the project will shorten the route of goods from China to Iran and forward. Being a part of the ambitious North-South Transit Corridor — a 7,200 km long multi-mode network of ship, rail, and road routes for moving freight between India and Europe —the China-Kazakhstan-Turkmenistan-Uzbekistan-Iran railway can shape the geopolitics of Central Asia.

The decision had been made at the time when Uzbekistan, under the leadership of Shavkat Mirziyoyev, embraced a new path for the country’s further development. Faced with a collapsing economy, international isolation, and a growing number of unemployed youth following years of Karimov’s misrule, the country had little choice but to open up. Unlike his predecessor, President Mirziyoyev adopted a clear strategy document (namely, Uzbek Development Strategy 2017-2021) with the aim of further liberalization of the economy and the development of local infrastructure and cargo routes.

It is safe to note that Uzbekistan now seeks new opportunities to be a key player in the region by promoting various transit projects. Railway diplomacy, in particular, is central to this strategy. Undoubtedly, Central Asian countries including Uzbekistan require large-scale investments in nearly all sectors, but developing regional and transnational connectivity is a sound economic opportunity to stimulate further growth and diversification. Hence, for Central Asian states these infrastructure projects are not merely grand investments but are also tickets to join a global trade and geographic reorientation toward market economies in Western Europe and South and East Asia.

Uzbekistan joined the new railway project as an attempt to regulate the flow of containers through its territory to Iran via Bolashak station. According to reports, the volume of traffic along the China-Kazakhstan-Turkmenistan-Iran corridor last year amounted to 1 thousand TEU (container in 20-foot equivalent). It is expected that the number will grow as all involved parties have agreed on integrated tariff rates for goods transportation. The total length of the China-Kazakhstan-Turkmenistan-Iran route is about 10,000 kilometers, and the total travel time is about two weeks, which is twice as fast than by sea, which takes 25-30 days.

It is not the only regional transit project that Uzbekistan joined recently. In the last three years, Uzbekistan’s new government has shown eagerness to boost cooperation with countries like India, Pakistan, and Afghanistan aiming to become a Central Asian gateway. It is worthy to note that from 2017, Uzbekistan is set to become the biggest trading partner of Pakistan from Central Asia since the bilateral trade between the two countries has improved from $36 million to over $90 million in 2018.

Moreover, in November of 2018, Foreign Minister Abdulaziz Kamilov visited Pakistan and was received by Pakistan’s Prime Minister Imran Khan. Several important issues were put on the table, including the proposal of constructing a railroad connection between the two countries that would pass through Afghanistan. Considering the substantial hydrocarbon reserves of Uzbekistan in oil and natural gas, Pakistan could have particular benefits from this cooperation.

The proposed railway connection is supposed to link Pakistan, Afghanistan, Uzbekistan and possibly India. Uzbekistan’s government pledged $500 million from its own funds for this critical railway line, which, if realized, will become the shortest transit route to the Iranian port of Chabahar. However, the Indian government did not immediately agree to this proposition.

For Uzbekistan, the proposed trans-Afghan railway project is critical in terms of strengthening its position as a crucial transit point of Afghan goods to other Commonwealth of Independent States’ (CIS) and Chinese markets. Until now Uzbekistan has established a transit hub in its Termez city, which borders with Afghanistan. The hub includes a railway line, station, and trade center for Afghan goods. Nevertheless, Uzbekistan seemingly intends to develop the railway connection by linking it with Mazar-i-Sharif and Herat cities, which will open a direct link to the Iranian Chabahar and Bandar Abbas ports.

Additionally, Uzbekistan is keen to encourage India – a global economic giant, to take an active part in its regional initiatives. Uzbekistan’s territory opens new horizons for India as the railway will allow India a more straightforward route to the markets of Afghanistan, Central Asia, and the wider Eurasian region. Currently, in large part due to the lack of direct transport routes, trade turnover between India and the Central Asian states remains far from its potential, and does not exceed 1.1 percent. Moreover, Uzbekistan eyes to gain access to the Indian Ocean’s sea trade routes through the implementation of the trans-Afghan railway.

All regional transit projects such as the aforementioned railway plans create the necessary conditions for the further development of intercontinental transport corridors. Notably, this line of development underscores Uzbekistan’s target to attract Chinese investments and possibly to enter into Chinese markets by its development of localand regional infrastructure and railway connections. For instance, the construction of the aforesaid Mazar-i Sharif-Herat route will allow goods to get from Afghanistan to China in merely three days via Andijan city in Uzbekistan. Thus, giving Uzbekistan’s potential as a transit country, economic benefits area matter of time.

The recently initiated railway diplomacy strategy is a part of Uzbekistan’s efforts to implement long-harbored projects to diversify the economy and boost external linkages. Notwithstanding the fact, the government still faces not only geopolitical but also financial challenges that need to be resolved. Though, the new government seems to lack of practical solutions for now. This includes the ongoing economic deficit and regional security problems, in particular in Uzbek – Afghan border. Yet, railway diplomacy is poised to help Uzbekistan rekindle its relations with major foreign economic partners and will also enable it to expand its influence across the region. In order to achieve this goal, the country needs to build constructive dialogue with neighboring countries just to prevent the future possible economic or political unrest. Indeed, it is an important step for the region’s long-term development plan.

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