MACRO ADVISORY: The five Stans back in the Game

MACRO ADVISORY: The five Stans back in the Game
After 30 years of development the five countries of Central Asia find themselves of interest to the world's major powers again.
By Chris Weafer of Macro-Advisory in Moscow May 14, 2021

For most of the past hundred years, Central Asia was little known to most of the rest of the world. It was closed to outsiders during the over seven decades of Russian occupation and, like most of the other former Soviet states, the countries in the region have often struggled to deal with political and economic freedom since independence. Some are still struggling to define their historic and current national identities while also trying to chart the best course for social and economic development. With few exceptions, the region has been of little interest to investors or multinational corporations. That is now starting to change.

This year, the five states that make up Central Asia will celebrate 30 years of independence. As they do so, the region is again an area of intense interest to major world powers.

Famously the region was the setting of the so-called Great Game in the 19th century, when Britain and Russia competed for dominance from the Caspian in the West to the Tian Shan and Pamir Mountains in the East. There was a minor replay in the 1990s and noughties, although then it was more about access to, and control of, the region’s considerable natural resources, especially oil, gas and minerals. The protagonists were the world’s major energy and mining corporations.

Today we can see Great Game 3.0 across the region. The competitors are Russia, China, the United States and coming up fast in the rear-view mirror, Turkey. Each of these has a clear agenda in support of their respective strategic objectives. But in this variant of the Great Game, the foreign powers have a local competitor: national governments are more assertive, better understand the game and are in greater need to deliver on their respective population’s economic expectations. They need more investment and better access to global markets.

This time, the growing interest in the region by the larger economic and political powers presents local leaders with an opportunity: they are better positioned to attract financial aid, development loans and strategic investment. Some, such as Uzbekistan, have already benefited significantly from aid and loans and others are gearing up to join that queue. Governments are also better positioned to conclude trade deals and to balance the interests of the great powers with their own agendas. The expanding transport networks, most spurred off the Chinese BRI system, give real substance to trade deals, whereas in the 1990s and noughties they were largely symbolic.

What is Central Asia?

It comprises five states with a combined population of 77.2mn. Economies have considerable potential to develop, with target GDP, based on purchasing power parity (PPP), estimated using World Bank methodology at an aggregate $900bn, three times today’s nominal value. Uzbekistan has the largest population, with 33.9mn, and Turkmenistan the smallest at 6.1mn. The region is resource-rich, with the Caspian states, Kazakhstan and Turkmenistan holding huge under-developed reserves of natural gas and oil, and the mountainous Kyrgyzstan and Tajikistan home to a wide range of mineral resources and hydro-electric power. Double land-locked Uzbekistan has huge agriculture and renewable energy potential.

One of the reasons why Central Asia remained relatively isolated for so long is because of the authoritarian political structures that emerged with independence. But that is also now changing and new regimes are now more accountable to a more politically active and demanding population. The remaining exceptions are Tajikistan, where President Emomali Rahmon has been in charge continuously since independence, and Turkmenistan, where President Berdimukhamedov is only the country’s second leader and has been in power since 2006. But the example of the other three states is that when the long-term leader leaves office he is not replaced by a similar autocrat, as people demand change.

The Rise of Eurasianism

Moscow has the leading position in the region it refers to as its near-abroad. Two of the states, Kazakhstan and Kyrgyzstan, are members of the Russian-lead Eurasian Economic Union and Russia has a military presence in Tajikistan and Kyrgyzstan. Excluding energy and minerals, Russia is also the leading trade partner for the region. Moscow officials are also a lot more determined to defend Russia’s position in the region, especially since political relations with the West have deteriorated so badly since early 2014. Eurasianism is a word heard more often in political and cultural discussions in Moscow and defines what officials see as the country’s legitimate area of influence in the world today.

The concept of Eurasianism is one of the varied conservative ideologies that emerged in Russia in the 1990s, according to research published the Central Asia and Caucasus Institute at Johns Hopkins University. It states that Eurasianism can be defined as an ideology which affirms that Russia and its "margins" occupy a median position between Europe and Asia, that their specific features have to do with their culture being a "mix" born of the fusion of Slavic and Turko-Muslim peoples, and that Russia should specifically highlight its Asian features. Eurasianism rejects the view that Russia is on the periphery of Europe, and on the contrary interprets the country's geographic location as grounds for a kind of messianic "third way.”

Eurasianism calls for a civilisational definition of Russia should be considered not as something specific to Russia but as part of a more global phenomenon. With the intellectual retreat of Marxism, socio-economic explanations seem to have been supplanted by the idea that only national identities, cultures and religions can explain the world as it is today. The (hoped for) widespread acceptance of Eurasianism confirms that the states of the former Soviet Union are fully in tune with the major ideological developments taking place across the planet in the early 21st century.

Stans in the middle

China’s interest in the region is both obvious and yet harder to define. It has invested, and lent, hundreds of millions of dollars to all the Central Asian states but almost entirely for the purpose of building infrastructure – mostly railways and pipelines – that supports China’s own economic development and trade expansion. China has shown no interest in establishing a political or military presence in the region. It has, after all, enough trouble dealing with its own western provinces. Very likely Beijing will continue to expand investments across the region, although it will have to alter terms to better balance the advantage with the local economies. It will most likely work with Moscow on political and military co-operation.

The United States has stepped up its various aid and investment programmes as it seeks to expand its influence in the region. This will increasingly be a priority as the Biden Administration withdraws military from neighbouring Afghanistan and very likely will want to both support the government in Kabul and monitor the activities of other groups in the country from neighbouring states to the north. Given the very clear dangers from the Islamic militant groups in Afghanistan, all of the Central Asian states will undoubtedly welcome security support from both Moscow and Washington.

Turkey is often referred to as being a latecomer to Central Asia, but that is not true. The language and culture of Turkmenistan, Uzbekistan, Kazakhstan and Kyrgyzstan are Turkic based. Turkish President Recep Tayyip Erdogan has been a frequent visitor to all the regional capitals and Turkish investment has grown significantly over the past ten years. Ankara has no intention of being left behind in a region it also views as a part of its historic near-abroad, a history that considerably pre-dates that of the Russian expansion of the original Great Game.

The bottom line is that as Russia, China, the US and Turkey broaden their efforts to establish greater influence in Central Asia, the five states are ideally positioned to benefit from financial, technical and trade support from their powerful suitors. That should help accelerate the closing of the gap between today’s nominal GDP and the target PPP based potential. It also means that the region, which has mostly been of interest to high-risk tolerant energy and mining investors, is starting to be of interest to a broader range of investors and multinationals.


Chris Weafer is the founder and CEO of the Macro-Advisory consultant based in Moscow.