Page 68 - bne_March 2021_20210303

68 Opinion
bne March 2021
Kazakhstan has been classified as an advanced middle- income country since 2006 and despite having a GDP per capita roughly equal to China’s, its export basket is less sophisticated. Despite efforts to diversify, Kazakh manufacturing output has stagnated. It is increasingly apparent that Kazakhstan is facing a middle-income trap
“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”
with elevated wage rates driven up by resource rents, combined with high transport costs. The result is restricted export competitiveness. Kazakhstan’s most likely escape from the trap is through prioritising service export capabilities by investing in higher education and research, along with specialised manufacturing.
The obvious downside of this strategy is that it would dampen opportunities for manufacturing co-location with China.
In the short term, China needs Kazakhstan as a partner for logistics coordination for the Asia-Europe corridor. Over the longer term, it could collaborate on R&D and educational exchange, but it would be less inclined to form manufacturing partnerships built on comparative economic advantage.
Uzbekistan also needs to diversify its economy and increase its export competitiveness, yet with a nominal GDP per capita under $2,000, the Uzbek economy currently is better suited for growth through export-oriented manufacturing – the “Chinese model.”
So far this century, Uzbekistan’s principal export focus, besides commodities, has been the auto industry. But that strategy has proven problematic for Tashkent. While auto exports accounted for 14% of Uzbekistan’s overall total in 2012, by 2018 the failure of joint ventures with GM and others, as well as less favourable trade conditions with Russia, caused autos to fall to less than 1% of exports. Expanding partnerships with China thus has the potential to rekindle this moribund sector.
The Uzbek model
Uzbekistan’s rising regional influence is the outgrowth of significant policy changes in Tashkent over the past five years, with President Shavkat Mirziyoyev upending the sclerotic dictatorship of Islam Karimov. At home, he’s taken steps to boost commerce, including suspending foreign exchange controls and opening the economy. Meanwhile, he has paved the way for integration with neighbouring states by
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striving to settle disputed borders, liberalise trade and tackle transnational issues. In particular, Uzbekistan has worked with neighbours on a sustainable framework to manage Central Asian water resources.
Since 2016, Mirziyoyev has sought to augment private-
sector growth by targeting privatisation and increased opportunity for small business development. The State Fund of Uzbekistan is prioritising microcredits aimed at stimulating entrepreneurship among young people and women. It is
also emphasising the need to boost the overall workforce participation rate of women. To get the initiatives off the ground, the government is relying on an admittedly modest initial $2mn grant from the World Bank.
It is still early days for these initiatives, and it is too early to tell whether institutional resistance from entrenched bureaucrats on the regional and local level may frustrate nascent reforms. Nevertheless, if successful they could provide an appropriate model for neighbouring states, especially Kyrgyzstan, Tajikistan and, eventually, Afghanistan. Uzbekistan perhaps has the greatest stake of any state in the region in fostering prosperity beyond its borders, both to grow trade markets as well as joint infrastructure.
Though more difficult to quantify, another critical element in the changing regional dynamic involves statecraft. Since President Nursultan Nazarbayev’s resignation almost two years ago, Kazakhstan has taken a somewhat less assertive leadership position. Of late, authorities seem to have downplayed regional economic connectivity in favour
of cultivating bilateral relations with Russia and China – capitalising on Kazakhstan’s favourable position
“Since 2016, Mirziyoyev has sought to augment privatesector growth by targeting privatisation and increased opportunity for small business development”
on transcontinental freight corridors. In doing so, Nur-Sultan is overlooking the fact that stronger regional economic cooperation is a prerequisite for attracting higher levels of foreign investment.
It is clear that a Kazakh-Uzbek tandem would be the optimal driver for regional coordination, and here, too, Uzbekistan has recently taken a lead. Mirziyoyev initiated the first heads-of- state meeting for a fractious region in March 2018, which was held in Kazakhstan. The two countries are actively coordinating the development of the Central Asian auto industry and evince a keen interest in Kyrgyzstan’s chronic instability.