Profile: Central Asian Countries

General Background

Central Asia sprawls from the Caspian Sea in the west to central China in the east; the north part of the country borders southern Russia and the south, northern Pakistan. Its history is fascinating including the Great Silk Road, the Timurid Empire under Tamerlane, nomadic inhabitant cultures, 19th century "great game" politics of British and Russian competition for control, and modern day interests of other countries in this region.

Less than 20 years ago, the Central Asia states, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan comprised the former Soviet Central Asian Republics. They were occupied by Russia for centuries and served as raw material suppliers to the Russian industrial centers. During the post-cold war era, Central Asia was considered an unstable zone due to ethnic related conflicts.

After the Soviet Union collapsed, these countries suffered a severe recession that is only now bottoming out as a result of economic restructuring and growing foreign investment. In addition to their traditional economic and political partner, Russia, there are a number of countries such as Turkey, Iran, China, Pakistan, India and the United States showing interest in this region due to its abundant natural resources of crude oil and natural gas.¹ For instance, China has been closely observing the events occurring in the Central Asia with the purpose of guiding energy and oil politics through the Shanghai Cooperation Organization; China's ability to do so was increased when it expanded its control over Tibet and Xinjiang (which borders Afghanistan, Kazakhstan, Kyrgyzstan, Tajikistan, India and Pakistan² in the early 1950's.³ Control of these regions allows China to maintain international trade flows through its new western hinterland highways.⁴

The Influence of Chinese Economic Growth on Central Asian Countries

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Caption: above:
Map of the Caucasus and Central Asia.
Created: Washington, D.C.
US Central Intelligence Agency, 2009.
From the Map Collections of the Geography and Map Division of the Library of Congress

Turkey has a considerable influence on the Central Asia countries due to their common ethnic and linguistic roots and historical ties. The political and economic partnerships of the region with Turkey are active and growing due to Turkey's involvement in the Baku-Tbilisi oil pipeline project. The United States military is involved in the region and has its oil diplomacy interest.⁵ Iran has historical and cultural ties with the region, presently competing for the oil pipeline construction between the Caspian Sea and Persian Gulf.⁶ Currently, the Iranian National Oil Company is the Dzhask pipeline project executor. The length of the pipeline is 1,550 km and a total of $3.5 billion will be invested into it construction.⁷ Pakistan's major interest in the region is the natural gas from these countries.

The Central Asian Economies

Agricultural production and the extraction of natural resources have always been the economic core basis of development for the Central Asian countries. In recent years, the major challenge faced by these countries has been transitioning to market-oriented economies from a centrally planned social economic system. Since their independence in 1991 these countries continue to undergo changes and reforms in their social-economic and legal systems.⁸

Kyrgyzstan

Kyrgyzstan was one the first former Soviet countries to join the World Trade Organization and open its markets to foreign investors since the 1990's.⁹ In 2000 the economy of Kyrgyzstan still was recovering from difficulties related to the economic challenges of the 1998 Russian economic crisis. However, foreign trade were restored, price and exchange rate stability and fiscal consolidation gradually recovered. Heavy external debt repayment remains and threatens to decrease the rate of economic normalization. Kyrgyzstan has been very successful in attracting Foreign Direct Investment (FDI) in the country's chief economic sector of gold mining but unfortunately FDI sources in other sectors have proven problematic.¹⁰ Thus, as of 2004, some 45% of Kyrgyzstan's exports were in gold and cotton fiber. Nevertheless, the Kyrgyz economy is domestically unstable and faces political corruption challenges, although its development posture remains pro-Western. This is evident as it is the only former Central Asian republic that continues to host a U.S. Air Force and NATO installation at Manas.¹¹

Kazakhstan

By the end of 2000, strong export growth and high inflows of FDI had enhanced Kazakhstan's economy. Its main export products are oil and natural gas. The economy of Kazakhstan differs from other Central Asian countries in that it has a well managed monetary policy and banking system. The same year Kazakhstan was able to pay all its debt to the International Monetary Fund (IMF). As a result, the U.S. Department of Commerce certified Kazakhstan with market economy status, in recognition of its substantive market economy reforms, free currency convertibility, wage rate determination, favorable environment for the inner and external investments, and state supervision over the means of production and resources. In 2007 Kazakhstan's economy grew by 8.5%, however, increasing global commodity prices pushed inflation to 18.8 percent in 2007 and 20% in 2008.¹²

Tajikistan

Tajikistan is considered to be the poorest Commonwealth of Independent States (CIS) country and one of the poorest countries in the world as a consequence of a devastating civil war. Tajikistan obtains its revenues from exporting cotton and aluminum. More than half of the population in Tajikistan is involved in the agricultural industry, with most involved in activities related to cotton production. Much of the population is working outside the country.¹³ Thus, the economy is very vulnerable to external shocks. The government pursued a firm staff-monitored program under the IMF to promote macroeconomic stability.¹⁴ Nevertheless, corruption within the government chokes off economic growth and private ventures.

Turkmenistan

Turkmenistan is the second-largest cotton and natural gas producer in the region after Russia. Therefore, Turkmenistan has less dependence on the global energy market price changes because the natural gas prices were not as volatile as oil prices.¹⁵ In the past Turkmenistan has been almost entirely dependent on Russian pipelines to export its natural gas. This situation is now changing with the opening at the end of 2009.¹⁶ of the Turkmenistan-China pipeline which transports gas from eastern Turkmenistan through Uzbekistan and Kazakhstan into China's northwestern Xinjiang region, thus allowing Turkmenistan to fulfill a 2006 agreement with China to supply that country with 30bcm per year of gas over next 30 years.¹⁷

Uzbekistan

In 2004 Uzbekistan's cotton production exceeded one million tons, which is 5% of global production for that year. It is the 4th largest cotton exporter in the world and Central Asia's leading producer. In 2004 Turkmenistan produced 203,000 tons; Tajikistan--172,000 tons; Kazakhstan--148,000 tons and Kyrgyzstan, 40,000 tons - in contrast to Uzbekistan which produced 1,125,000 tons.¹⁸ However, the government has established a restricted import replacement policy to coordinate foreign trade and avoid capital outflow. The Asian Development Bank (ADB) recommends that the state focus on " environmentally sustainable rural development, private sector development, regional transport and customs transit, and human capital. Governance is emphasized as a crosscutting theme".¹⁹ Russia and China are the main investors in the Uzbek oil and gas industry. In 2006 Uzbekistan became a member of the Collective Security Treaty Organization (CSTO) and, for a time, the Eurasian Economic Community (EurASEC), which it later left in 2008.²⁰ The Central Asian economies are open but not fully integrated with the global economy in many ways. Kazakhstan is the richest and most economically developed one among the five Central Asian countries and has multifaceted relations to globalization. Many workers from Tajikistan, Uzbekistan and Kyrgyzstan are employed in Kazakhstan and Russia as migrant workers. ²¹ Due to this fact, the migration rates and remittances are very high and Russian and Kazakh economies have major impacts on the economies of other Central Asian states.

Foreign Economic Relations:
Policy Responses to the Global Financial Crisis

According to the International Monetary Fund Survey from May 2009 the growth in Central Asia including the Caucasus was expected to decrease by 0.9% in 2009 as result of the global economic crisis.²²

The global crisis has had major effects on Central Asia, which includes three oil and gas exporters (Kazakhstan, Turkmenistan and Uzbekistan) and two oil and gas importers (Kyrgyz Republic and Tajikistan). Even though the financial markets are relatively feeble in those countries, the crisis impacted the region's falling commodity prices and decreased export demand and transfer of funds inflows, particularly from Russia. The economic role of Russia remains significant in Central Asia and the rest of Commonwealth of Independence States even after the collapse of the Soviet Union. Most Central Asian countries are dependent on remittances from their northern neighbors.²³ The current downturn in Russia and Kazakhstan has resulted in job- terminations for one to two million workers from their neighboring countries. One third of GDP in Kyrgyzstan and half of the GDP in Tajikistan are from remittances coming from abroad.²⁴

Kazakhstan has experienced considerable consequences from its close incorporation into global financial market; in particular, the banking system was substantially affected by the U.S. financial crisis. The government response was to spend a third of its gross domestic product, in the amount of $45 billion, with the purpose of reinforcing, the Tenge, the national currency, in addition to aiding failing banks and supporting construction organizations.²⁵

Most of the Kyrgyz financial sector is dominated by the Kazakh banks that contributed to Kyrgyzstan's declining rate of growth in the GDP.²⁶ Although the Uzbek banking sector is governed by a highly centralized government authority, it was likewise affected by Kazakhstani banking and lending procedures. The financial sector of Turkmenistan too is under increasingly autocratic state control. Turkmenistan conducts sizeable transactions processing revenues from natural gas and cotton exports and the transfer of remittances from ex-patriots. In contrast, Tajikistan remains very poor, which has slowed its prospects for better integration into the global financial system.²⁷

In conclusion, appropriate policy responses were made by Central Asian countries responding to the global crisis, including currency depreciation to lower foreign exchange inflows, easing monetary policy and launching short-term liquidity for restricting the credit crunch, as well as other fiscal stimuli. However, the IMF recommends that these countries take more measures such as allowing exchange rate flexibility to preserve competitiveness and enhance the country's currency; improving social safety nets to protect the poor; and imposing tighter banking oversight to reduce finance system vulnerabilities and sector risks. ²⁸

Key Economic Figures

Table 1: Population, Area, GDP, Inflation, & Unemployment

Source: 2010 CIA World Fact-book https://www.cia.gov/library/publications/the-world-factbook/index.html Viewed on December 31, 2010.

Table 2: Major Exports

Source: 2009 CIA World Fact-book https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html and World Bank. World Development Indicators. http://data.worldbank.org/indicator

Table 3: Imports and Exports

Source: 2009 CIA World Fact-book https://www.cia.gov/library/publications/the-world-factbook/index.html and Country Profiles. Federal Research Division. Library of Congress. http:////lcweb2.loc.gov/frd/cs/profiles.html and UN data, http://data.un.org/ Viewed december 30, 2010.

Table 4: IMF Growth Projections

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  23. Sergej Mahnovski, Kamil Akramov, Theodore Karasik. Economic Dimensions of Security of Central Asia. Santa Monica, CA: RAND Project Air Force, 2007, pp. 15-16.
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  28. International Monetary Fund. "Crisis Virtually Halts Growth in Caucasus and Central Asia," IMF Survey Magazine. (May 11, 2009).
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Last updated: 11/19/2014