Page 54 - bne magazine March 2017 issue

54 I Eurasia bne March 2017
INTERVIEW: IMF sees Kazakhstan benefitting
from a newly opened-up Uzbekistan
Naubet Bisenov in Almaty
Kazakhstan should not count on
its traditional economic growth drivers to rescue its struggling oil-based economy, as oil prices and its major trading partners are expected to remain relatively subdued for some time. Instead, a senior International Monetary Fund (IMF) official argues, the country should carry out structural reforms to compete head to head with regional rival Uzbekistan, which has signalled its readi- ness to open up its isolated economy to more regional cooperation.
Thanks to its huge natural resources
and openness to foreign investment, Kazakhstan enjoyed an oil boom that helped fuel an average GDP growth rate of 5.16% between 1995 and 2016, which propelled the country into the ranks of middle-income countries. But it is now increasingly facing the middle-income trap, where national incomes stagnate due to low investment, slow growth in the secondary industry, limited industrial diversification and poor labour market conditions.
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“We can’t expect either oil prices to remain high or China to grow strongly and save Kazakhstan now,” Mark Horton, mission chief for Kazakhstan in the IMF’s Middle East and Central Asia Depart- ment, tells bne IntelliNews in an interview. “The situation is not expected to improve in major trading partners China, Russia and the EU over the next five years.”
Low oil and other commodity prices together with a slowdown in the Chinese, Russian and EU economies have cut Kazakh growth rates from 4.2% in 2014 to 1.2% in 2015 and 0.4% in the first three quarters of 2016.
While it will be hard for Central Asia’s richest country to diversify its raw-mate- rial based and state-driven economy, especially with the economy growing so slowly, Horton says that to escape the middle-income trap Kazakhstan needs to carry out deep structural reforms, which could be facilitated by the opening up of Uzbekistan that is being pushed by the new president, Shavkat Mirziyoyev, after
he took over following the death last year of the dictator Islam Karimov.
The opening-up of Central Asia’s most populous nation to regional cooperation and trade will be good for Kazakhstan in many respects, “as Kazakhstan has not had a real competitor in Central Asian over the last 20 years”, Horton says. “If Uzbekistan ups its game and improves its policy approaches, Kazakhstan will need to do the same and it will give the region a locus of economic weight in Central Asia that we have not seen before.”
Karimov’s isolationist policies led to the situation where Kazakhstan’s cross-bor- der trade with Uzbekistan didn’t exceed 3% of Kazakhstan’s total foreign trade. “If Uzbekistan opens up, it is an additional 35mn people for the regional market and this might also create a positive dynamic in Turkmenistan,” Horton suggests.
Another Central Asian neighbour Turk- menistan, like Uzbekistan, is also one of the world’s most isolated countries, and