Investment and better regional connectivity, as well as improved links with Europe, may be a lifeline for the struggling Central Asian economies, writes Joël Ruet.
By Dr Joël Ruet is an economist at CNRS (National Centre for Scientific Research in France) and president of The Bridge Tank, a G20 affiliated think tank.
As China eyes the new economic goals for the next five years announced at the Annual Economic Work Conference on 18 December, Chinese and EU diplomats seem hopeful of striking a historic investment deal before the end of the year.
Improving economic relations, boosting trade and infrastructural connectivity with the EU has been among China’s priorities for almost a decade.
A significant step in this direction was made in 2013 when China launched the Road and Belt Initiative whose primary goal is to connect Asia to Europe by building infrastructure along the approximate routes of the historic Silk Road.
Beyond Europe, a group of Central Asian states will likely benefit most of all from the improved EU-China ties.
Former Soviet Union republics of Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan and Turkmenistan have been in Russia’s orbit since their independence in the 1990s. To different extents they are still heavily dependent on Russia economically and politically.
At times the US tried to gain more influence in the region, however, institutional, cultural and linguistic legacy of the Soviet Union prevailed and the republics remained closely allied with Russia.
Since the US gradually withdrew from active operations in Afghanistan and Iraq, its involvement in Central Asia also tangibly decreased. Hit hard by the Covid-19 pandemics and by internal political divisions the US is not in the position to exert superpower ambition in Central Asia.
Moscow, although trying to project an image of superpower, had little of value to offer to impoverished Central Asian republics – neither investments nor economic vision for the future.
Trade remains the largest sector in terms of GDP and employment structure in all Central Asian economies. Central Asian economies to different extents are largely informal. They were historically located along the Silk Road and thrived on global trade. Oil rich Kazakhstan and gas rich Turkmenistan benefited from natural resources mining; however, large parts of population still mostly make their living on trade.
For example, the largest employer and the largest taxpayer in Kyrgyzstan is the local Dordoi market. Set up by Askar Salymbekov in 1991 it grew from a few rows at the start to the largest market in Central Asia spreading on an area of over one million m2.
Dordoi now employs over 55,000 people and has over 40,000 retail points, mostly converted shipping container shops. It is possible to buy almost anything you wish from this market from Chinese socks to luxury watches and phones.
Kazakhstan’s “Flea market” founded in 1984 by the Soviet authorities continued to operate after the collapse of the USSR and became a lifeline for many people who lost their jobs in the beginning of 1990s. Over the past decades it remained one of the most successful busines projects of Almaty despite going through a number of transformations and likely ownership changes.
The Abu Saxiy market in Uzbekistan founded in 2006 by Timur Tillyaev on an empty land lot with a few hundreds of shipping containers, rapidly grew into one of the largest markets and trade logistical companies in the country. At its peak Abu Saxiy had close to 3,000 retail points on an area of over 167,000 m2.
With around 10,000 people shopping at the market, it provided jobs for over 5,000 people and livelihoods for thousands more. The market remains an essential part of Uzbekistan’s economy.
Other republics also have similar giant markets which constitute a lion share in the country’s GDP and employment structure. All of them, however, were devastated by Covid-19. With cities coming in and out of lockdowns and public being scared of the virus, the markets’ profits plummeted and trading stalled.
Investment and better regional connectivity as well as an improved links with Europe may be a lifeline for the struggling Central Asian economies. If successful, the BRI projects can provide jobs, boost regional trade which has historically been impaired by the notorious lack of infrastructure and make European markets more accessible.
The European Union will also benefit immensely from the improved connectivity. Currently, Russia has a complete monopoly over gas export routes from Central Asia. Breaking Russia’s grip on the pipelines by launching the Trans-Caspian shipping route, proposed by the BRI, may well serve China, Europe and Central Asia’s economies.
Furthermore, the EU will have better supply of high-quality agricultural goods.
Whether the BRI will be a success remains to be seen as China reassesses its international lending policies and may retract on some of its BRI plans. Yet, it proves to be one of the most ambitious projects to provide the republics of Central Asia with a chance for a more prosperous future.