Page 67 - bne_March 2021_20210303

bne March 2021
Opinion 67
PERSPECTIVES:
Uzbekistan rising as Central Asian integration catalyst
Eurasianet
Anew dynamic governing regional integration is shaping up in Central Asia. Uzbekistan is challenging Kazakhstan’s position as the region’s power broker, and China’s economic choices may well be a critical factor in determining the outcome of the leadership rivalry.
The shift seems counterintuitive on the surface, given that Kazakhstan’s economy currently generates three times
the GDP of Uzbekistan’s. Kazakhstan also enjoys better connectivity with international markets. Nur-Sultan’s strong diplomatic relations with China and Russia should seemingly ensure that Kazakhstan remains the main driver of regional integration. Nevertheless, the reality is that the road to Central Asian stability and prosperity is increasingly running through Tashkent.
The changing dynamic is driven by China’s sober reassessment of its Belt and Road Initiative (BRI), its ambitious plan to reshape the contours of global trade. Beijing has tweaked its BRI strategy to focus more on securing trade ties in Asia, while deemphasizing the construction of ambitious transcontinental trade corridors. To this end, China is seeking favourable destinations for foreign direct investors pursuing lower-wage co-manufacturing opportunities.
Uzbekistan’s key advantage in this altered context is human capital: With an estimated population of 33.5mn, Uzbekistan is by far the most populous country in a sparsely inhabited region on China’s western flank. Uzbekistan’s total fertility rate (TFR) was one of the highest in the Soviet Union and stayed above replacement levels throughout the tumultuous 1990s. As a result, Uzbekistan now has a large cohort of young people entering the workforce each year.
As highlighted in the chart on the right, Kazakhstan’s TFR recovery after 2000 will soon create an analogous situation to what Uzbekistan already is experiencing. This demographic trend is naturally motivating authorities in both countries to prioritise job creation.
Chinese investors are attracted by Uzbekistan’s lower wages.
At present, Chinese investors are attracted by Uzbekistan’s lower wages in the manufacturing sector relative to wages in China. Uzbeks are also becoming more sceptical of Chinese investment. Even so, 75% of Uzbek respondents had at least some confidence that Chinese investment would create jobs, according to a recent Central Asia Barometer poll. The poll showed only 24% of Kazakhs felt the same way.
This discrepancy may be partly a reflection of the Uzbek government’s past moves to curtail Chinese land acquisition and limit foreign labour participation in joint ventures. Kazakhstan, meanwhile, has witnessed protests in recent years over leasing land and the influx of Chinese workers.
A second dimension of the changing integration dynamic is economic flexibility. Uzbekistan is much better positioned than Kazakhstan in the current economic climate to partner with Chinese manufacturing firms.
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