The former Soviet republics of Central Asia have spent the past 24 years looking for a modicum of independence. Finbarr Bermingham reports on how they’ve found themselves involved in yet another game of political tug of war.
Over three short months at the tail-end of 1991, the fall of the USSR gave birth to the five modern-day Central Asian republics known as ‘the Stans’. The region has since paid host to a plethora of international flashpoints. When discussing the political and economic significance of the Stans, the term ‘strategically important’ has become almost an official prefix. But for Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan, the struggle for independence continues.
Described in a recent report by the Centre for Eastern Studies (OSW) as “young nations whose statehood is not yet well-established”, they are satirised in the west for their strongmen leaders who rule with vanity, steel and whim. In 2002, Turkmenistan’s “first president for life” Saparmurat Niyazov renamed the days of the week and months of the year with ‘April’ becoming ‘Gurbansoltan’ – which was also, by remarkable coincidence, his mother’s first name. Earlier this year, President Nursultan Nazarbayev floated the possibility of dropping the ‘stan’ from Kazakhstan, in an ostensible attempt to differentiate it from its poorer neighbours.
The rebrands have been, sadly, more widely reported than the human rights violations, border skirmishes and civil wars – all of which have plagued five states looking for their own national identity.
The Silk Road provided trade and cultural links from China to the Mediterranean, and passed through much of Central Asia. The Stans, then, have rich trading histories but are today separated by clear economic divisions, largely determined by the nations’ respective natural resources.
Kazakhstan is, by some distance, the leading economy. It has more oil than both China and the US and a gross national income (GNI) that’s more than three times larger than that of Uzbekistan, the second-largest, and almost six times that of Turkmenistan in third place. In recent years there has been serious overseas investment in Kazakhstan’s energy and infrastructure sectors, for better or worse. The huge Kashagan oil project has attracted more than US$50bn from international equity partners including Eni, Exxon Mobil, Royal Dutch Shell, CNPC and Total. The investors had initially expected to pump less than US$20bn into a facility that was supposed to start producing oil in 2005, but which has yet to produce a drop.
Some ventures are more worthwhile. GTR last year attended the signing of a loan between KTZ, the national rail operator, and the EBRD. At the time, KTZ’s vice-president for logistics Kanat Alpysbayev said: “Kazakhstan will be a regional logistical hub. It’s halfway between east and west and we view our railways as being the bridge between the two.”
Turkmenistan has the third-largest natural gas reserves in the world. It too has grand ambitions. Five-star hotels in luxury resorts have begun springing up in its Karakum (‘Black Sand’ in English) desert, with capital Ashgabat being billed “the Dubai of the Caspian”. The ADB-sponsored, US$7.6bn TAPI pipeline will rise in Turkmenistan, through Afghanistan and Pakistan, to India. Pipelines connecting the country with China in the east are already operational. The economy is promising, but fears abound over the influence of militant Islam.
Uzbekistan is also a top 20 gas producer, but exports less than the others. It has the region’s largest population and, as such, uses most of its resources internally. It is also the world’s sixth-largest cotton producer and ninth-largest gold producer, but economic mismanagement and corruption have meant the economy has failed to capitalise on its abundant labour force and natural resources. The country is governed with belligerent and caprice. One banker who has worked extensively in the country told GTR recently: “Uzbekistan is in deep shit.”
Compared with the three dominant economies, Kyrgyzstan and Tajikistan are underdeveloped, with a fraction of the resources. 31.4% of Kyrgyzstan’s GDP comes from remittances – money transferred to the country from nationals living and working overseas (mainly in Russia). For Tajikistan, the figure is a startling 51.9%. Kyrgyzstan has some gold reserves, but a combination of red tape and graft makes it difficult for anyone to extract them.
The Canadian miner Centerra Gold had been operating the Kumtor site in the Issyk Kul province since 1997, when it purchased 100% of the rights. The Kyrgyz government, however, revised the contract in 2012 to allow it to take a 33% stake in the local operating subsidiary Centerra had set up to run the mine.
A resolution was reached in April of this year to allow mining to start again, but not before foreign investors had been
well and truly spooked.
Tajikistan is heavily-dependent on the production of cotton, known locally as “white gold”. The Eurasian Development Bank has been working with the government to modernise the sector. In 2009, it arranged financing of US$22.57mn for equipment to be used in the construction of a cotton yarn. The machinery was imported from Germany, with coverage provided by Euler Hermes. But according to Daniel Bolschun, principal banker at the EBRD, the sector has been undermined by years of mis-harvesting.
Regional trade links are strong. A hangover from the ghettoised production of the Soviet Union – each state specialised in a certain industry or crop – as much as the spread of resources, they’re reliant on each other for certain commodities and products. But despite this, relationships between the five are often fraught.
Analysts have warned that the ongoing border dispute between Kyrgyzstan and Tajikistan could escalate. In January, Tajik troops fired mortar rounds on Kyrgyz border guards in response to a bypass road being constructed through disputed territory by Kyrgyz contractors. In 2010, 420 people (mostly ethnic Uzbeks) were estimated to have been killed in South Kyrgyzstani rioting, in the aftermath of the ousting of President Bakiyev. Anti-Uzbek sentiment is strong in Kyrgyzstan.
The bickering can be petty too: at a 2011 convening of the Shanghai Co-operation Organisation, a multilateral economic and security organisation, the Uzbek leader Islam Karimov was alleged to have switched places at a photo-shoot to avoid being stood next to Tajik counterpart Emomali Rahmon. There is no love lost between the strongmen of Central Asia, but despite their own self-importance, the post-independence history of their nations has been mainly defined by the actions of Russia to the north and China to the east. In recent months, an increasingly bellicose Russia has been looming larger than ever, casting a longer shadow over the Stans’ autonomy than at any point since 1991.
Taking a stan
Only Turkmenistan and, to a lesser extent, Uzbekistan have been able to achieve any sort of political and economic distance from Russia. Both are ruled by sultanistic dictators that are willing to stand up to Moscow, and have relatively small ethnic Russian communities (compared to Kazakhstan at least). They have the resources and alternate routes to market to be able to diversify their trade routes (Turkmenistan has a huge border with Iran and is a big trader with China, for instance). Russia still accounts for 27% of Uzbek exports, however, but just 2.1% of Turkmenistan’s.
They’re both notable in their wariness over accepting Russia into their industries. “Russian investment has not been welcome as it was seen as a threat to national sovereignty and as running counter to attempts to diversify relations,” Dr Jonas Grätz, an analyst specialising in energy security and Russian foreign policy at the Centre for Security Studies in Zurich, tells GTR. “Lukoil has a large investment in Uzbek gas and Gazprom has tried to enter the market as well by building relations with the ‘royal family’, in this case Gulnara Karimova, but has been less successful.”
Turkmenistan has been involved in a series of disputes with the Kremlin-backed Gazprom over the purchase of natural gas. In 2009, Gazprom announced it wouldn’t renew energy commitments for Turkmen gas over a price dispute. Ashgabat accused Russia of “egregious” actions, saying it had engineered a pipeline explosion that disrupted Turkmen exports. Gazprom refused to pay the ‘European rate’ for gas it had committed to before the onset of the financial crisis. With important export relationships with Beijing, Tehran and Ankara, though, Turkmenistan can afford to be picky and the relationship has been spiky ever since.
Uzbekistan still exports cars, vegetables and cotton to Russia, but President Islam Karimov is “very sensitive about giving up control”, says Murodjon Farmanov, an Uzbek banker who works for the EBRD. This attitude extends beyond Russia, giving Uzbekistan a reputation for flakiness and aggression on the international markets. Farmonov tells GTR of a palace built in Tashkent by German contractors at a cost of US$500mn, which the government simply refused to pay for. The Swiss pharmaceutical company Ival agreed to build an insulin plant near Tashkent in 2011, which would satisfy local demand and act as a regional export hub for the diabetes’ medicine. Three years later, the project has yet to break soil. It seems that the best made plans in the country are those which are never made at all.
South Koreans appear to have had better luck in Uzbekistan, reportedly because their attitude caters better to the Uzbek sensitivity. The 173,000-strong Korean population in Uzbekistan is the sixth-largest diaspora outside of the Korean Peninsula. Many are ancestors of ethnic Koreans forcibly relocated from the Soviet Far East in 1937. “In the 1990s Uzbeks had good relations with Afghanistan, then Turkey and now Korea,” says Farmanov. “Uzbeks are very sensitive people. You need to be sensitive to work there. The Koreans have a more sensitive attitude.”
The Koreans may be more welcome because they brought their industry with them. Daewoo partnered with the state-owned Uzavtoprom in 1992 to open a US$658mn automotive plant, producing an initial 30,000 microbuses a year, most of which were exported to Russia. By 2012, the output had increased to more than 100,000 units and five different models. “Koreans are seen as investors in Uzbekistan, whereas the Turks were seen as offtakers,” Farmanov says.
What’s the russ?
At 4,254 miles long, it would take longer to navigate the Kazakh-Russian border than it would to drive from London to Kinshasa. 23.7% of Kazakhstan’s population is Russian and the country is reliant on Russia to facilitate the export of its oil and gas to Europe. It helps explain why, along with Belarus, Kazakhstan has been Moscow’s closest ally among former CIS states. Good relations are essential to Kazakhstan’s economic wellbeing, while close ties with the Kremlin helps lend Nazarbayev’s regime an air of legitimacy. The three are the only current members of the nascent Eurasian Economic Community (commonly known as the Customs Union), but Russia is keen to expand the group.
Moscow has been exercising its economic power over the region in an effort to expand its sphere of political influence, perhaps most notably in Kyrgyzstan. Given its lack of resources, Kyrgyzstan has always been open to any investment it can attract, courting Russia, the west and China. In 1998, it became the first former Soviet republic to join the WTO. The Manas Transit Centre opened in December 2001 to transport US troops into Afghanistan (although the Kyrgyz government has ordered it to be closed by July of this year, a sign of the west’s waning influence). And last year, the Chinese-funded Kara-Balta oil refinery opened in the Choi Oblast at a cost of US$250mn.
But the serious investment has come from Russia. In December 2013, the government in Bishkek approved the sale of Kyrgyzgaz, the indebted national gas monopoly, to Gazprom for the princely sum of US$1 (Gazprom committed to investing US$610mn to improve the Kyrgyz energy infrastructure, but will also gain hold of important pipelines). Rosneft is currently trying to push through a deal for a majority stake in Kyrgyzstan’s state-owned airport authority. Last year, RusHydro began constructing a US$400mn hydropower dam, with Inter RAO committed to financing and building a US$2bn facility further down the Naryn River. It amounts to what Dr Grätz at the Centre for Security Studies describes as economic “carrots and stick”. The investment is the carrot, while the stick is the threat to end free movement of Kyrgyz and Tajiks to Russia (recall how heavily-dependent both states are on remittances). One journalist, writing in the regional political blog Registan described Customs Union membership as an “illusion of choice”.
Grätz says: “By using its carrots and sticks, Moscow won Armenia, Kyrgyzstan and Tajikistan as new accession states, whereas Ukraine resisted. The Kremlin plans to turn the Customs Union into the Eurasian Economic Union by 2015.”
Russia views the Customs Union as a political tool, more than anything else. It helps to shield it from the world market and uphold current economic structures. It acts as a buffer zone between Europe on one side and China on the other. But the example of Ukraine is pertinent and has created two-pronged anxiety among some of the Stans.
First, the strongmen leaders are fearful of the same sort of social unrest that toppled the government in Kiev. This wouldn’t be without precedent: revolutions in 2005 and 2010 ousted the then governments in Kyrgyzstan. Second, there is fear that Russia’s annexing of Crimea is an ominous harbinger of what’s ahead for Russian-speaking regions of Central Asia. At a protest outside the Russian Embassy in Astana in March, a man was arrested for unfurling a banner reading: “Yesterday Abkhazia, Ossetia; today Crimea; tomorrow north Kazakhstan!” The parallels are clear.
This is hao we do it
There can only be one counterweight to Russia’s economic expansionism: China, which is treated with a paradoxical cocktail of trepidation and enthusiasm. The trade relationship is already established: China is the major export partner for Turkmenistan, Kazakhstan, Uzbekistan and Tajikistan. Undocumented trade is also common. “People travel over the Chinese border with suitcases full of cash,” says Bolshun at the EBRD, “and return with suitcases full of tat!”
But concerns exist over China’s treatment of Uyghurs in Xinjiang, China’s easternmost, largest and only majority Islamic province. There is a strong Uyghur diaspora throughout Central Asia, much of which is also Islamic.
However, compared with Russia, China’s investment comes with few political strings attached. An OSW report on China in Central Asia reads: “The fact that China (unlike Russia and the USA) demonstrated its lack of interest in imposing any of its domestic policy solutions upon individual Central Asian states turned out to be a major positive element in relations with China (especially in the first decade of the 21st century). Thus, China became a factor which has indirectly been stabilising the internal situation and de facto reinforcing the regimes operating in Central Asia.”
For China, stability, along with tapping natural resources, is a big factor behind its increasing trade and investment in the region. Further unrest spilling-over into Xinjiang will be anathema to Beijing, which is already struggling to keep the province in check. Its policy of chequebook diplomacy has been widely criticised but, this time around, the motivation may well be different.
“You can try to apply economic rules to this place, but they never fit,” one banker familiar with the Stans joked to GTR recently. The region is still unheralded in the west, viewed by the mainstream as a remote post-Soviet backwater. But this hive of political and economic activity once again finds itself being eyed-up from all side, destined to be forever caught in the crossfire between east and west.