Central Asia outlook for 2016: a geopolitical stalemate

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BISHKEK (TCA) — Politically and economically, Central Asia will largely depend on Russia’s and China’s recovery and any prediction for 2016 can make sense only with consideration of the political and economic capabilities of these two countries.

What was originally an area of exclusive political influence of Russia is now seriously challenged by the financial and investment capabilities of China, which with its New Silk Road Belt policy is advancing heavily in the entire Central Asia region. Here in Central Asia there are too many internal factors that in addition to its geopolitical position affect the future stability of the region. We refer to the succession problem of charismatic authoritarian leaders such as Nazarbayev of Kazakhstan and Karimov of Uzbekistan, the struggle between various elites and clan groups, the endemic corruption with private interest, the poverty and unemployment level that fuel unrest, and of course the continuous security problem on the region’s borders related to the IS and situation in Afghanistan.

There is no doubt that all Central Asia countries have an urgent need to introduce reform in the judiciary and economic spheres, not to mention the humanitarian side and the media liberalization. All this would weaken the centralized power and may jeopardize the real essence of the existing system, and consequently the agenda to such reforms will not have the priority required. Whatever the economies of Central Asia countries will be able to generate in 2016 by their internal development the dominant geopolitical factor will continue to influence the overall situation with China leading the way to any possible development and Russia slowly withdrawing from its large financial assistance and probably focusing more on security and less on economic development. This will certainly generate additional problems to countries like Kyrgyzstan and Tajikistan which will be forced to look to other solutions and potential investors. Due to the little appeal to foreign direct investor in the near future, the only alternative remains China. This may upset Russia and the West but it looks like an inevitable consequence of the present difficulties.

What is going on in Afghanistan and ISIL expansion there should also be seriously considered for the security of the entire region. Another indirect factor to be watched is related to the problem of temporary and permanent migrants of Uzbekistan, Kyrgyzstan, and Tajikistan moving to Russia and Kazakhstan. The unemployment at home matched by the economic difficulties of host countries such as Russia and Kazakhstan may fuel nationalism there and send migrants back, considerably reducing their remittances to home countries and creating a migration crisis with labor protests developing into a new wave of unrest.

Kyrgyzstan’s expected benefits from its membership of the Eurasian Economic Union (EEU) are far from being materialized due to the fact that the country does not have goods for export and needs to seriously reform its agricultural and manufacturing sectors. In the meantime the Kyrgyz currency, som, has lost more than 25% of its value against the dollar, making imports more expensive with migrant remittances on a sharp decline.

The recent announcement that Russia will not be able to continue financing the hydro power project of Kambarata and Naryn cascade is another drawback for the country that will force Kyrgyzstan to look for alternative investors and only China is potentially capable of taking over such project. In the meantime the fact that the matter of Kumtor — the largest tax payer in Kyrgyzstan — has not yet been solved after two years of disagreement casts doubt on the potential of the mine to continue contributing the same level of taxes as before to the State budget.

Add to this the recent breakdown of obsolete cables at the country’s largest Toktogul hydro power plant, depriving the country of much-needed energy. This means a reduction of energy supply and deterioration of the wellbeing of a large part of the population with power imports from Kazakhstan at high prices. The Kyrgyz Government is trying to increase budget revenues by suggesting an arguable measure of creating a gambling zone and re-introducing the licensing for casinos, though intended for foreign gamblers only. Unless Kyrgyzstan implements much needed reforms, cuts its dependence on Chinese imports, and reforms the controlled judiciary, it will be very difficult to achieve a stable growth. In Kyrgyzstan, as in other Central Asian countries, reforms affect many vested interests and therefore require a political will that is now missing and demand a different type of leadership.

For Tajikistan, the economic results of 2015 was not too bad, but 2016 may be quite difficult mainly due to security problems and internal tensions, with the country now asking Moscow to retake control of the Tajik-Afghan border. With the Tajik currency having lost about 25% against the dollar and migrant remittances considerably reducing, the future does not look bright. Poverty, lack of employment, power shortages, and border security are possible sources of destabilization in the country.

Uzbekistan, according to statistics, finished 2015 with a growth in excess of 6%, and if such growth will be maintained in 2016 due to the large-scale privatization program initiated in 2015, it will be a good result indeed. What cannot be discarded is the power succession issue, with President Karimov still firmly in control but with doubts cast on his health. On top of this, the general geopolitical situation and the security problem on the border with Afghanistan, matched by socioeconomic problems, may generate unexpected unrest.

Turkmenistan remains heavily dependent on gas exports and will continue to diversify export markets with an increased supply to China and the TAPI project to deliver gas to Afghanistan, Pakistan, and India. The security problem is also of utmost importance for Turkmenistan’s projects delivering gas to the East, with Taliban and IS making it necessary to consider a detour of the new export projects via Iran.

Kazakhstan is reacting aggressively to the downturn of 2015 largely using the resources of its $64 billion National Fund. The national currency depreciated more than 20% in addition to the previous devaluation in February 2014. 2016 may see further devaluation and efforts to increase exports, but it looks like the situation will remain unchanged although hopes are placed on the 2017 Expo in Astana.  

Overall in Central Asia, the economic slowdown in China and Russia will certainly affect all five Central Asian states. All this with Russia and the EU continuing their disagreement and the US and Russia far from reaching a reasonable compromise with the present European sanctions probably to continue although a mitigation should not be excluded. In the meantime, Russia and the West will continue to fight the Islamic State and global terrorism but the situation in the Middle East will remain tense and far from being settled. For Central Asia, all this would mean a period of stalemate and watching world powers solving their own problems.