Diversity and Dynamics of Central Asia

If modern Central Asia were a single emerging economy it would be just as big as South Africa, but growing much faster, both in population and economic growth. Such comparisons give an insight into  the weight of the region among emerging markets, but in all other cases such generalizations could be misleading.

The Central Asian countries represent different economic systems. Oil and gas-rich countries such as Kazakhstan and Turkmenistan have reaped the rewards of high oil prices in the last two decades. Not so rich Kyrgyzstan, Tajikistan and Uzbekistan have had to rely more on the Soviet industrial legacy as well as on leveraging agriculture potential. A substantial number of citizens are working abroad, predominately in Russia, and sending remittances home, which represents just one of the many ways these countries are dependent on Russia, and until recently, China. At the same time, digital technologies have been considered as one of the most important new economic opportunities for the region: being landlocked leaves too few other options.

Political models also vary significantly, from Kyrgyzstan which is often recognized in the West as the only true democracy in the region, to conservative and authoritarian Turkmenistan, to Kazakhstan, which combines a strong autocratic leadership with a strong focus on building institutions and developing human capital. The recent death of Uzbekistani President Karimov, who ran the country for more than 25 years, symbolized the end of the Soviet era patriarchs in power. There is a certain resemblance to the expectations in Cuba, in the sense that Raul Castro, who is perceived to be a bit more moderate and perhaps far less powerful than Fidel, would probably be better positioned to conduct gradual liberal reforms that would have been unlikely under his revolutionary brother.

The social dimension represents a remarkable cultural legacy and a significant demographic dividend. Central Asia is a homeland for people of more than one hundred ethnicities, speaking more than 30 languages and practicing all the world’s largest religions. The population is relatively young – with a median age is less than 27 years old, well educated, with an almost 100 per cent literacy rate and tertiary enrollment rate up to 50 per cent. The most noticeable efforts in building human capital have been seen in Kyrgyzstan, where for more than 20 years the American University of Central Asia has been helping local youths gain access to world-class education, as well as in Kazakhstan, where symbolic Nazarbayev University in cooperation with world’s first-class universities provides free education to young Kazakhs. Nonetheless, there are still issues with women’s empowerment, migration, a brain drain, and delayed urbanization. Young people who cannot find a better role in society face multiple risks from the religious extremism and terrorism promoted by fundamentalists and ISIS.

This diverse, complex and dynamic region, combining ancient culture and traditions with forward-looking aspirations, is potentially on the very edge of transition from a great past to an even greater future. OBOR could facilitate this transition.

OBOR: Impact on Central Asia

The planned Northern and Southern corridors of the Silk Road Economic Belt across Central Asia makes the region a natural beneficiary of the anticipated US$890 billion in total infrastructure investments.

There is a huge need for infrastructure development of all kinds in Central Asia, such as transportation, water supply and energy systems, etc. The construction work alone would be a huge economic opportunity for the region. Moreover, and more importantly, these large-scale infrastructure systems would continue to generate income and create more jobs through a multiplier effect. They will require service and maintenance as well as an evolution of the whole ecosystem of adjacent businesses, including local small and medium-sized enterprises, in such sectors as energy, transport, repair and construction, retail, catering, hospitality, IT and telecoms, financial, technical and business services, security, etc.

At the same time, it is recognized that the largest ever, most expensive and complex development project in human history would be implemented in large part in uncertain and volatile environments. In order to reduce the costs and risks of implementation, the obvious hard infrastructure development will need to be supported with less obvious soft infrastructure and enabling systems, such as investment, trade and tax regulation, technical and environmental standards, arbitrage and dispute resolution, etc.

The only existing foundations in the region for this soft infrastructure and enabling systems in the region have provided by a combination of the Eurasian Economic Union, the Shanghai Cooperation Organization and the Collective Security Treaty Organization. Since these organizations were not originally designed to support the Silk Road Economic Belt (SREB) initiative, there will be much work to do in terms of linkage and adaptation.

This work will not be easy but it offers the most efficient way forward. For projects of such scale and duration, that are so vulnerable to a minimal loss of trust, whatever can increase transparency and strengthen partnership will be worth the effort.

By Skolkovo’s Institute for Emerging Market Studies (IEMS)
Alexey Kalinin, SKOLKOVO IEMS, Director
Gaukhar Nurgalieva, SKOLKOVO IEMS, Head of Eurasian Studies Lab
Oleg Remyga, SKOLKOVO IEMS, Head of China Studies Lab