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Central Asia: Kazakhstan Likely Leader In Regional Cooperation

  • Gulnoza Saidazimova --> Kazakhstan last year showed some of the strongest economic growth in the Commonwealth of Independent States. The gross domestic product (GDP) of the oil-rich country grew by 9.3 percent. Kyrgyzstan also enjoyed a good year, with 7.1 percent GDP growth. The two countries are considered to have the freest economies of Central Asia, and have taken steps to develop bilateral economic ties in a region where partnership and trade are the exception rather than the rule. Experts say Astana, as Central Asia's leader in economic growth, may become the driving force behind regional cooperation -- if and when the remaining capitals show sufficient political will.

Prague, 27 January 2005 (RFE/RL) -- Kazakhstan is one of the biggest oil producers and exporters in the CIS, and the recent surge in world oil prices has been a boon.

Rich oil revenues have allowed the country to develop its other economic sectors. Kazakhstan's retail and financial sectors both saw significant growth in 2004.

Anne Walker is a Central Asia analyst with London's Economist Intelligence Unit.

“Kazakhstan has had a much more successful record in areas such as the financial sector which has proceeded with liberalization much more credibly than in other countries. And it has welcomed investment into the oil sector," Walker says.

Kazakhstan's banking sector has had particular success. According to the Standard and Poor's international financial rating agency, Kazakh bank assets are the third largest in the CIS, after Russia and Ukraine.

And Kazakh banks have extended their influence beyond the country's borders. Kyrgyzstan's Kabar news agency reported earlier this month that Kazakh banks control 50 percent of Kyrgyz banks.

But there are problems as well as achievements. Oraz Zhandosov is a former chairman of the Kazakh National Bank.

“There are certain positive developments in the country. They are connected with the income from export of natural resources. I wouldn’t say the biggest, but a significant part of that income remains in the country. Then it is spent on commodities and services like housing construction, consumer services, restaurants, and retail trade. These sectors have developed. However, the commodity-production and service sectors, which could be competitive on a global or at least the regional market, remain underdeveloped," Zhandosov says.

Kazakhstan's agricultural sector, which is the country’s second-largest employer after industry, remains underdeveloped due to limited government reforms. Experts say it may become an obstacle for economic growth in coming years.

Earlier this month, "The Wall Street Journal" newspaper and the U.S.-based Heritage Foundation, a conservative policy institute, published an economic-freedom index. The Kazakh and Kyrgyz economies were ranked as “mostly unfree." This was one category higher than the remaining three Central Asian republics of Turkmenistan, Uzbekistan, and Tajikistan, whose economies were all rated as "repressive."

Kyrgyzstan has had success in attracting Russian and Kazakh investment. But Bishkek is still heavily reliant on foreign loans and is vulnerable to the strict conditions of its creditors.

Observers say the country's political opposition has used this fact to criticize the government's performance -- something that may have consequences ahead of parliamentary and presidential elections in Kyrgyzstan.

Officials have reported Tajikistan's 2004 GDP growth as 10.6 percent -- higher than either Kazakhstan or Kyrgyzstan. But Walker says that was not enough to raise Dushanbe out of the "repressive" economic-freedom category.

“[Tajikistan] has had a lot of problems attracting investment, partly because of the [1992-97] civil war, but also because it is not a particularly attractive market. Tajikistan is located between Afghanistan and Uzbekistan and it always scores very badly in corruption, disease, and things like that,” Walker says.

Tajikistan remains one of the poorest countries in the CIS. According to a poverty assessment report by the World Bank, 57 percent of the population live on or below $2.15 a day.

Experts say there are no foreign companies or banks looking at Central Asia as a major area of interest. Western investors are wary of the region's poor business environment and pervasive corruption.

But Russia, which has greater ease operating in the region, is actively pursuing closer economic ties with Central Asia. Russia's Gazprom monopoly has signed several contracts with Uzbekistan's Uzbekneftegaz energy company during the last two years, and has increased its import of Uzbek gas.

Walker says a development in intraregional economic ties in Central Asia would help the countries compete better on the world market.

“Although [the Central Asian] presidents frequently say how committed they are to cooperation, there has been little evidence they are actually prepared to go ahead with that. Organizations are already set up to do that, but they have conflicting interests in things like managing water resources. You know, one country needs it for some months for cotton, another country needs it for electricity. And yet, it’s quite an important bargaining chip in negotiations. No country is willing to relinquish rights over things like the use of water,” Walker says.

Walker says in addition to water issues, another obstacle to cooperation is the necessity to share oil and gas pipelines to export the region's hydrocarbon resources.

Kazakhstan, Uzbekistan, and Turkmenistan have tried to develop new routes and work out projects for new pipelines. But they still remain highly dependent on the Central Asia-Center pipeline that travels through Russian territory.

Kazakhstan is looking to spearhead regional cooperation projects. But Zhandosov, the former national bank chairman, says Kazakh companies seeking to broaden their partnership with neighboring countries face serious obstacles.

“Genuine integration requires similar socio-economic systems in the countries involved. This is the first condition. The second is political will on all sides. Look at Central Asia. The socio-economic systems in two countries -- Uzbekistan and Turkmenistan -- are completely different from the others. Genuine integration, therefore, is impossible,” Zhandosov says.

Moreover, Zhandosov adds, the political will that could open up borders to a free flow of people, capital and goods has not been demonstrated in practice.