Abstract

The five former states of Soviet Central Asia—Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan—extend from the Caspian Sea in the west to China in the east, and from central Siberia in the north to Afghanistan and the Islamic Republic of Iran in the south, covering a combined area equivalent to just over one-fifth of Russia’s total land area. The region is rich in natural, agricultural, mineral, and fuel resources. Since the beginning of the 1990s, all five countries in the region have worked toward exploiting their resources more fully while moving their economies toward a market framework. Their progress with economic reforms has been influenced to a considerable extent by their political structures, ethnic characteristics, and remoteness from major world markets.

The five former states of Soviet Central Asia—Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan—extend from the Caspian Sea in the west to China in the east, and from central Siberia in the north to Afghanistan and the Islamic Republic of Iran in the south, covering a combined area equivalent to just over one-fifth of Russia’s total land area. The region is rich in natural, agricultural, mineral, and fuel resources. Since the beginning of the 1990s, all five countries in the region have worked toward exploiting their resources more fully while moving their economies toward a market framework. Their progress with economic reforms has been influenced to a considerable extent by their political structures, ethnic characteristics, and remoteness from major world markets.

Political Environment

The five Central Asia states became independent in 1991, after more than a century of Russian and Soviet rule. Declarations of independence by these countries were backed by national referendums with overwhelming approval. In the presidential elections that followed, candidates mostly ran unopposed and won by sizable voting majorities. Subsequently, popular referendums extended the terms in office of presidents in Kazakhstan, Turkmenistan, and Uzbekistan and increased the authority of the president, relative to the legislature, in the Kyrgyz Republic. The Central Asian states adopted constitutions that lay a foundation for a parliamentary democracy but had mixed success with the promotion of individual rights and freedoms.

Following independence, the Central Asian states continued to maintain close ties with other countries in the region. They also became members of a number of multilateral organizations, including the IMF, the World Bank, the EBRD, and the Asian Development Bank. Kazakhstan and Uzbekistan currently hold observer status in the World Trade Organization and have applied to join; the Kyrgyz Republic joined the organization in October 1998. Turkmenistan officially adopted neutrality status, which was recognized by the United Nations in late 1995. Despite the predominance of Islam in these territories, the Central Asian states have tended to be cautious in their approach to neighboring Muslim countries, possibly for fear of alienating Russia,1 or as a reflection of a reluctance to being closely identified with religious regimes. Among the Arab countries, Saudi Arabia has helped to develop religious infrastructures, such as schools, mosques, and religious centers, in these countries. Turkey has intensified political, cultural, and economic ties with the Central Asian states, and has emerged as a possible alternative to Russia as a transit way for oil and gas exports to European markets.

Demographic Characteristics

The Central Asian states display a mixed ethnic composition. Prior to independence, Russians accounted for a sizable proportion of the populations in Kazakhstan (38 percent) and the Kyrgyz Republic (22 percent), but constituted only 10 percent or less of the populations of Tajikistan, Turkmenistan, and Uzbekistan (Table 2.1). Ethnic Uzbeks were the second largest group in Tajikistan (24 percent) and constituted a significant proportion of the population in the Kyrgyz Republic (13 percent). In the region as a whole, Uzbeks were, by far, the largest ethnic group, followed by Russians and Kazakhs, with Kyrgyz and Turkmen being the smallest groups.

Table 2.1.

Social and Demographic Indicators1

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Sources: National authorities: Pomfret (1995); Hunter (1996); and IMF Staff Country Reports.

Unless otherwise noted, the indicators shown are for 1997 (for 1996 in the case of Tajikistan).

The decline is explained by emigration, mostly of the Russian population.

About 6 percent of Kazakhstan’s population and 2 percent of the Kyrgyz Republic’s population were German.

Ethnic tensions seriously threatened some of the Central Asian states. In Tajikistan,2 political turmoil and civil strife escalated into a civil conflict in 1992, with devastating consequences. The conflict subsided in 1994 but violence sparked anew in 1996. Currently, peace is maintained under an agreement signed in mid-1997. Other tensions exist between ethnic groups within national borders, such as between the ethnic Kyrgyz and the ethnic Uzbek in the Kyrgyz Republic, as well as between separate states, such as Uzbekistan and Turkmenistan. Tensions and growing nationalism have led to the emigration of the Russians (employed mostly in strategic industrial enterprises), thereby weakening human capital in these countries, but also easing the burden on social programs.

Resource Endowments and Initial Economic Structures

Agriculture plays an important role in the Central Asian states and provides employment for large segments of the populations. Soviet rule imposed a cotton monoculture on Turkmenistan, Uzbekistan, and Tajikistan and, to a lesser extent, on Kazakhstan and the Kyrgyz Republic. After the completion of the Karakum Canal in 1962, Turkmenistan became the second largest producer of cotton in the Soviet Union, and the tenth largest in the world, while Uzbekistan grew to be the world’s third largest cotton exporter (about one-half of the country’s export revenue came from cotton in 1992). The Kyrgyz Republic had a small cotton sector, given its mountainous territory. Kazakhstan’s agricultural sector was more diversified. Not only did it become self-sufficient in grain production, but Kazakhstan also became a net grain exporter in the region (though yields were much lower than in the two major grain producers, Russia and Ukraine). Kazakhstan, moreover, developed a strong industrial sector and was the only country in the region where agricultural employment was below industrial employment.

A number of the Central Asian states are endowed with rich energy resources—natural gas, oil, coal, and hydro energy. Kazakhstan, the only Central Asian net exporter of oil, had 85 percent of the region’s proven oil reserves and was the second largest oil producer in the Soviet Union after Russia.3 Kazakhstan also provided one-fifth of the Soviet Union’s coal, most of it used in electricity generation and in the processing of iron. Turkmenistan had almost one-half of the proven gas reserves of the Central Asian region and became the fourth largest gas exporter in the world at the beginning of the 1990s when gas exports exceeded 80 billion cubic meters. Uzbekistan was the only other net gas exporter in the region. Currently, the greatest oil reserves potential is around the Caspian Sea, an area contested by the littoral states. While the Kyrgyz Republic and Tajikistan do not have significant gas and oil deposits, the abundant hydro resources of the Amu Darya and Syr Darya Rivers have turned these countries into major producers of hydroelectricity. Energy resources were redistributed within the Union of Soviet Socialist Republics (U.S.S.R.) and sold to international customers through a regional network of oil and gas pipelines. Following independence, the Central Asian states continued to rely on these pipelines, which remained under Russian control, for trade in energy products.

In addition to energy resources, the Central Asian states have abundant deposits of gold, iron ore, and other minerals. One-third of the gold in the former Soviet Union was produced in the Kyzylkum Desert, making Uzbekistan the second largest gold producer in the Soviet Union and the eighth largest in the world. About one-half of the Soviet Union’s silver, and one-fifth of its gold, was produced in Kazakhstan. The Kyrgyz Republic’s Kumtor gold mine is the eighth largest in the world.

Despite rich natural resource endowments and the potential for industrial development, the Central Asian states, with the exception of Kazakhstan, were biased toward production and export of raw materials and cotton-based agriculture. The share of agriculture far exceeded the share of industry in these countries’ GDP (Table 2.2). Agricultural wages were typically much lower than industrial wages in the Soviet Union, and agricultural wages in Central Asia were less than one-half of comparable wages elsewhere in the Soviet Union.4 The Central Asian states, therefore, had much lower per capita incomes relative to the rest of the U.S.S.R.

Table 2.2.

Selected Economic Indicators Prior to Transition

(In percent)

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Sources: Pomfret (1995); IMF and others (1991): Spencer and Ross (1992): EBRD (1996); and EBRD (1997).

Private sector as defined in the EBRD Transition Reports

Within the former Soviet Union.

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2

Tajikistan was part of the Uzbek Soviet Socialist Republic during 1925–29.