Kazakhstan and Central Asia (January - September 2018)

Kazakhstan

General information: This country has the largest territory in the Central Asia and ranks second in terms of the population size. 

In the south it shares borders with Uzbekistan, Kyrgyzstan and Turkmenistan. China is its south-eastern neighbour, and Russia adjoins the Kazakh borders in the north and in the west. Kazakhstan has access to the Caspian Sea, and it has water boundaries with Iran and Turkmenistan. 

Key industries are: manufacturing industry, agriculture, construction, trading activities, transport, and communications. 

The following factors determine trading and transit capabilities of the country: 

- Geographical location: Several key transportation corridors pass through the territory of Kazakhstan: Europe - China, Russian - Central Asia, China - Iran. 

- Rapidly growing infrastructure: Kazakhstan is continuously investing a lot in expanding the existing transport routes. The volume of railroad freight traffic is increasing and makes up to two thirds of the overall freight traffic inside Kazakhstan. 

Economic trends: GDP growth in 2017 was up to 4 per cent. Most economic sectors demonstrated positive performance indicators. The growth in mining industry was about 5.5%, in secondary industry the pace of growth was almost the same - about 5.2%. The increase in wholesale and retail distribution was +5.9%, in transportation and warehousing: + 4.9%, in the real estate operations: +2%.

The equivalent period of 2017 featured economic growth as well, mostly due to increased volume in mining and secondary industries, agriculture and trade. 

Inflation rate in Q1 2018: the inflation rate remained at a level of 5-7%.

Foreign trade: According to the Statistical Committee of National Economy Ministry, foreign trade turnover in Kazakhstan during the seven months of 2018 increased by 20.1% as compared with the same period in 2017, and achieved almost 51.94 bln. US dollars. 

Export sales increased by 26% which is equal to 34 bln. US dollars, while import operations increased by 10.3% (17.93 bln. US dollars).

The major trade partners for Kazakhstan are Russia, China, USA and EU member states: Germany, Italy, and France.

The structure of export sales in January - July 2018 is represented below:

•    Mineral stock - crude oil, oil derivatives, petroleum gas and hydrocarbons - 74.3%

•    Metal stock and fabricated metal products - 14.8% 

•    Animal and plant products, fabricated food commodities - 4.8% 

•    Chemical and associated products, including rubber and plastic materials - 3.6% 

•    Others - 1.5%

The main destinations of export flows from Kazakhstan are: EU countries - 55.3%, China - 9.9%, CIS states - 15.6%. The share of EAEU countries was 10%. Over 800 types of commodities are exported by Kazakhstan to 123 countries worldwide. 

The structure of exports is rather stable and has not drastically changed. The growing economic indicators in H1 2018 are determined by several external factors, the main one is the increase in oil prices. For the same reason the positive trade surplus is expected to have grown even more before the end of this year. According to the experts from the National Bank of Kazakhstan, this trend will continue until the end of 2018.

The structure of imports during the seven months of 2018 is represented below: 

•    Machinery, equipment, transportation vehicles, instrumentation and appliances - 38.6% 

•    Chemical and associated products, including rubber and plastic materials - 17% 

•    Metal stock and fabricated metal products - 12.2% 

•    Animal and plant products, fabricated food commodities - 11.7% 

•    Mineral products - 8.8% 

•    Others - 11.7%

The major importers for Kazakhstan are EAEU countries (40.5%), EU countries (20.4%), China (16.4%) The National Bank of Kazakhstan expects https://vlast.kz/novosti/29470-nacbank-prognoziruet-rost-importa-v-2018-i-2019-godah.html the volume of imports to have gradually increased by 8% until the end of 2018, and achieve up to 10% during 2019. 

Landmark events in Kazakhstan in September 2018: 

The optimistic expectations expressed by some economists in early 2018 did not come true. The rate of US dollar has gone up dramatically. The main reason for that became the sanctions introduced against Russia. But there is good news as well. For example, the National Bank of Kazakhstan is planning to keep the inflation rate at a level of 5-7%. 


Kazakhstan is planning to increase oil extraction: We are talking about Kashagan - the largest oil deposit located in the northern part of the Caspian Sea. Before the end of 2018 the volume of extraction is expected to have reached 87 million tons, and in 2019 - up to 88 million tons respectively. This estimate is stated in the draft law on the budget of the Republic of Kazakhstan for the next 5 years. In 2017 tax revenues from oil companies exceeded 38% of the overall volume of tax proceeds.

Kyrgyzstan

General information: This is a land-locked country. In the north it borders on Kazakhstan, in the east - on China, in the south - on Tadzhikistan and Uzbekistan. 

Presently the transit and trading capabilities of this country are at a low level. The railroad infrastructure has not experienced any changes or improvements since the collapse of the USSR. Today the share of railroad freight traffic does not exceed 5%. Re-establishment and development of automobile roads (its share in freight traffic is up to 93%) is based on the Chinese “One Belt, One Road” concept. 

Key industries are: agriculture, service industry, manufacturing industry, construction industry, trading activities, tourism, transport, and communications.

Economic trends: 

GDP growth in 2017 was up to 4.5 per cent. According to the National Statistical Committee, service industry accounted for the biggest share in the GDP structure (for H1 2018) - 47% of the overall volume. The share of agriculture was 10.2%, construction industry counted for 6.4%. The real growth in agriculture was 2.1%, and in trading it reached 5.5%.

Inflation rate in H1 2018 was 0.1%.

Foreign trade: According to the Ministry of Economics, the foreign trade turnover of Kyrgyzstan in the period from January to June 2018 increased by 17.1% as compared with the same period in 2017 and achieved 3.24 bln. US dollars. The main factors of growth of economic indicators were increased import operations (+22.8%), while export operations increased insignificantly - by 2.7%. Therefore, the deficit of trade balance is about 1.62 bln. US dollars, as compared with the previous year the figures are 1.4 times lower. 

The major trade partners of Kyrgyzstan are: China, Russia, and Kazakhstan. 

The structure of exports in January - June 2018 for the main categories of commodities looks as follows: 

Increase

Decrease

Cement

by 7.4 times

gold 

- 18.2 %

electric power

by 2.7 times

ore and precious metal concentrate


- 18.7 %.


textile and knitted garments

by 2.4 times



Rubber footwear

by 2.5 times



cotton fibre

by 2.1 times



metal debris and copper waste

by 2.4 times



dried bean products

+ 29.4 %.




Main export destinations for Kyrgyzstan are UK (31.8%), Russia (22.3%), Kazakhstan (15.5%), Uzbekistan (10.0%), Turkey (4.3%), and China (3.8%). Kyrgyzstan sells domestic commodities to 82 countries worldwide. 

Major export product in monetary terms is gold, the same as it used to be. The share of agricultural products in the structure of exports has slightly increased, but this increase in non-stable. 

There is a constant growth of imports for the following types of commodities

•    Garments - by 2.3 times

•    Leather goods - by 1.8 times 

•    Fruit and nuts - by 1.8 times 

•    Footwear +52.9%

•    Ferrous metals +40.6 

•    Artificial fibres +27.4

•    Machinery and equipment +34.5%

•    Oil and oil derivatives +8.4% 

Main importers for Kyrgyzstan are China (41.9%), Russia (22.8%), Kazakhstan (9.6%), Turkey (5.9%), USA (3.8%), Uzbekistan (3.4%), and Germany (1.5%). 120 countries worldwide export their goods to Kyrgyzstan. 

Landmark events in September 2018: 

The overall volume of money transfers made by migrant labourers has increased: According to the National Bank of Kyrgyzstan, in the period from January to July 2018 the cash flows in the form of money transfers made by migrant labourers to Kyrgyzstan reached 1.5 bln. US dollars. 

As compared with the same period last year, this amount increased by 189.1 million US dollars. Over 90% of money transfers were made from the territory of Russia (1.48 bln. US dollars). USA ranks second in terms of money transfers to Kyrgyzstan. The amount of money transfers from this country is 14.2 million US dollars.

Tadzhikistan

General information: The smallest country in this region. It is a land-locked state. Tadzhikistan borders on Uzbekistan in the west and north-west, in the north it borders on Kyrgyzstan. China is its eastern neighbour, and it shares its southern border with Afghanistan. 

With the current level of trade and transport infrastructure, along with barriers to trade, the transit capabilities of Tadzhikistan are low. Geographical location makes it possible to reach the market of India and Iran through Afghanistan territory, and to get access to Russian and Kazakh markets through Kyrgyzstan. The share of automobile transport in the freight traffic structure is rather large - about 90%.

Key economic industries: Agriculture, manufacturing industry, trade

Economic trends: 

GDP growth in 2017 was up to 7.1 per cent. In H1 2018 the stable growth of economic performance has been ensured by manufacturing industry, including power generation (17.9%) and trade (17.2%).

The inflation rate in the period from January to August 2018 was 2.8%. 

Foreign trade: According to the Customs Service of Tadzhikistan, from January to July 2018 the trade turnover was 2.04 bln. US dollars. In the same period of 2017 the turnover was just 1.68 bln. US dollars. 

The deficit of the trade balance keeps growing as well: from 0.8 bln. US dollars to 1.01 bln. US dollars.

The major trading partners of Tadzhikistan are: Russia (470 mln. US dollars), Kazakhstan (416 mln. US dollars), China (316 mln. US dollars) and Uzbekistan (128 mln. US dollars).


In January - July 2018 key categories of commodities in the structure of exports demonstrated some growth as compared with the same period of 2017

•    Aluminium and associated products +9.3%

•    Ore, shruff, ashes +10.7%

•    Cotton +87.1%

Changes in import volume for the main types of commodities:

•    Crops -6%

•    Mineral fuel, oil and oil refinery products +26%

•    Equipment, boilers, mechanical equipment +60%

•    Ferrous metals +73%

•    Ground transport vehicles (except railroad transport and trams), their parts and accessories +96.3%

Landmark events in September 2018: Tadzhikistan has increased its exports of electric energy to Uzbekistan. After a 9-year pause Dushanbe makes up for the lost time. In July 2018 Tadzhikistan supplied 417 million kilowatt-hours of electric energy to the neighbouring republic which exceeded the monthly allowance by a factor of 4. 

One third of overall volume of domestically generated electric power is exported abroad. Afghanistan is another customer to buy electric energy from Tadzhikistan, besides Uzbekistan.

Uzbekistan 

General information: This country has access to the sea; in the east Uzbekistan borders on Kyrgyzstan; it shares its borders with Kazakhstan in the north-east, in the north and in the north-west, while Turkmenistan and Afghanistan are its neighbours in the south and in the south-west, in the south-east Uzbekistan borders on Tadzhikistan. 

Key economic industries: Manufacturing industry, service industry, agriculture, trade, construction industry.

Uzbekistan is actively expanding its existing network of transit and trade routes and making the new ones. This country is a participant in some railway construction projects to connect Uzbekistan with the Persian Gulf states, with China and EAEU countries. 

Economic trends: GDP growth in 2017 was up to 5.3 per cent. In H1 2018 the growth was at a level of 4.9% which is about 19.5 bln. US dollars.

Inflation rate for the five months of 2018 was 6.6%. 

Foreign trade: According to the Ministry of Foreign Trade in Uzbekistan the foreign trade turnover has increased by over 24% as compared with the same period of 2017 and reached 17.7 bln US dollars. The country export turnover was 7.8 bln US dollars, while import turnover was 9.9 bln US dollars. Therefore, the deficit of the foreign trade balance was 2.1 bln US dollars. 

The major trade partners of Uzbekistan in 2018 are: Russia, China, Kazakhstan, Turkey, and South Korea. 

Export structure in January - June 2018:

•    Cotton fibre - 2.22%

•    Food commodities - 7.93%

•    Chemical products - 0.63%

•    Energy commodities - 17.34%

•    Ferrous and non-ferrous metals - 5.92%

•    Machinery and equipment - 1.37%

•    Services - 32.56%

•    Others - 32.03%


Destinations for most part of exports from Uzbekistan are China, Russia, Kazakhstan and Turkey. Export coverage is over 80 countries worldwide. 

The structure of exports has been slightly changing: the share of raw materials has gradually been getting lower, while the role of secondary sectors has increased. 

According to customs statistical data the structure of imports for the above period looks as follows:

•    Mechanical machinery 24.5% (+51.6% as compared with the same period in 2017) 

•    Ground transport vehicles and associated parts thereof 10.1% (+74.3%) 

•    Ferrous metals 7.9% (+47.2%)

•    Fossil fuels, oil products 6.5% (+49.7%) 

•    Flying vehicles and associated parts thereof 1.8% (increase by 24.4 times)

•    Wood and wood products 4% (+41.0%) 

•    Crops 1.9% (+47.6%) 

Major importers for Uzbekistan remain Russia, China, Kazakhstan, South Korea, and Turkey. 

Landmark events in September 2018: Strategy of partnership costs 1.3 bln US dollars.

Islamic Development Bank will grant loans to Tashkent to ensure economic growth. 475 million US dollars are expected to be spent for power generation projects, transport and urban development projects. About 300 million US dollars will be allocated for housing and infrastructure development and for trade industry support. The remaining part of the loans will be allocated for social projects and private projects in Uzbekistan. 

Uzbekistan has been a good partner with IDB since 2003. 

USA excluded cotton products from Uzbekistan from the ‘black list’.

Washington decided that Uzbekistan showed ‘some progress’ in reducing the number of children engaged in cotton picking. As Tashkent authorities have already stated, this step will have ‘positive effect’ on the reputation of Uzbekistan and will ‘pave the way for cooperation with the leading global brands in textile industry’. 

Until a few years ago cotton used to be the major export product in Uzbekistan.

Central Asia and China

Beijing has put much effort and achieved some success in promoting its “One Belt, One Road” concept in Central Asia. For PRC this is a necessary step in building alternative transport corridors which are expected to be added to the Sea Silky Way routes. 

Therefore, China will have access to the largest markets of Eurasia: EU market, Persian Gulf countries etc. 

China is perfectly aware of the fact that some countries in Central Asia, such as Tadzhikistan and Kyrgyzstan are too poor to deploy even their own projects, let alone third party projects, and China is working to resolve this problem. China is investing in the infrastructure of those countries and mining valuable minerals in their territory, thus providing necessary volume of raw materials and energy to supply own needs, on the other hand, China is contributing to employment of local population. 

This long-term strategy is dangerous for the countries with less developed economy, but it is rather advantageous for industrial giants like China. The fact that the neighbours are financially dependent on them means that those low developed countries are more likely to agree with any project Beijing offers to them. There are not so many disputable or suspended projects for today. Among those pending issues is the fourth gas pipeline ‘Central Asia - China’ which is expected to go through the territory of Kyrgyzstan and Tadzhikistan. There is also a rail road which is intended to connect already existing railways in China and Uzbekistan, this rail road is planned to go through the territory of Kyrgyzstan. 

The latter project is opposed by two countries: Russia and Kazakhstan. Both of them have their own geopolitical, economic and military reasons to raise objections to this project. 

Central Asia and Russia

For Russia Central Asia has been and remains its sphere of influence both in the field of economics, politics and national security. Two of the five countries in this region - Kazakhstan and Kyrgyzstan are members of the Eurasian Economic Union. The union was initially established to create its own markets to protect the economies of these countries from the growing ambitions of China. 

Tadzhikistan is not an EAEU member; however it is strongly dependent on Russia. The reason for that dependence is the fact that part of the Tadzhik population are migrant labourers in Russia and the money they send to their families in Tadzhikistan is a great support for the economy of the country.

Uzbekistan is not an EAEU member either, but Moscow is one of the most important trading partners of Tashkent. Implementing the policy of liberalization and open economy Uzbekistan is moving forward to closer cooperation with Moscow.

Denis Berdakov, political scientist