Economic turbulence is buffeting Central Asia, where a triple whammy of low energy prices, recession in neighbouring Russia and a slowdown in global powerhouse China are taking their toll.
Flagging growth, weakening currencies and a difficult trade environment are resulting in economic challenges for the five states of Central Asia, which sprawl over a vast region stretching from the steppes of Siberia to the borders of China and Afghanistan. “The main factors depressing growth in Central Asia are the fall in global commodity prices, which has particularly hit the main regional energy producers, Kazakhstan and Turkmenistan, and the slowdown in Russia’s economy,” says Alex Nice, regional analyst at the London-based Economist Intelligence Unit.
Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan face pressure from several directions: from Russia in the north, a major trading partner for these former Soviet colonies; from China in the east, where slowing growth has repercussions that are rippling over Central Asia’s borders; and from global markets, where the slump in commodity prices means less cash flowing into the energy producers’ coffers. “A wave of external shocks – primarily falling commodity prices, spillovers from Russia and movements in major exchange rates – continue to weaken growth prospects and heighten financial vulnerabilities” in Central Asia, the International Monetary Fund warned last month in Kazakhstan’s commercial capital, Almaty.
Commodity crunch
The decline in the oil price from more than a US$100 (Dh367) per barrel last year to below $50 now has put Kazakhstan’s – where oil accounts for a quarter of GDP and 60 per cent of export earnings – economy under pressure. As economist Kassymkhan Kapparov, the director of Kazakhstan’s National Bureau for Economic Research think tank, puts it, “every second dollar our country earns is from mineral resources”. Nursultan Nazarbayev, Kazakhstan’s long-serving ruler, presided over a decade-long oil boom from the late 1990s but on October 19 issued a stark warning to his countrymen: “A real crisis is starting.” Budget revenue has fallen by 40 per cent because of the fall in oil prices, and Nazarbayev’s government is tightening its belt and cutting growth forecasts. GDP will expand by just 1.5 per cent this year, it says, compared with 4.3 per cent last year.
This may come as a shock to a public accustomed to petrodollar-fuelled growth, the most visible manifestation of which has been a retail boom that has gripped Kazakhstan in recent years. These days, customers are reluctant to part with their cash, however. “Some days we sit here all day and make no sales,” sighs Zukhra Zhumazhanova, a clothes seller in an Almaty market who is among many small-business owners lamenting the slump. Gas-rich Turkmenistan and Uzbekistan – which send the bulk of their supplies to China – are also feeling the pinch from the fall in global energy prices. Both have posted growth figures of about 8 per cent so far this year – although many economists are dubious about the statistics.
There are signs of trouble behind the scenes: Turkmenistan used to provide free gas and petrol allowances to citizens but last year it cancelled the free petrol and now it is scaling back on the gas.
Regional repercussions
Spillover from two giant neighbours, global powerhouse China and former colonial power Russia, is piling on the economic woes. After years of boom, China is experiencing a slowdown that translates into less demand for exports, such as metals and less regional investment as Beijing – which has spent years winning Central Asian hearts and minds by digging into its deep pockets to fund infrastructure improvements – feels the pinch.
China’s economy is still growing, however, in contrast to that of Russia, which is in the grip of a recession sparked by low energy prices and western sanctions over the ongoing conflict in Ukraine, which US President Barack Obama claimed earlier this year had left the economy “in tatters”. Speaking to parliament last month, deputy prime minister Igor Shuvalov scoffed at that claim but added laconically: “I can’t say the economy is feeling well.”
Moscow expects GDP to shrink by 3.9 per cent this year – and when Russia sneezes, its neighbours catch a cold. Regional trade is waning, even among members of the new Eurasian Economic Union, a Russia-led free trade zone of which Kazakhstan and Kyrgyzstan are members. Central Asia is also suffering from currency contagion from the 50-per-cent drop in the value of Russia’s rouble in the past year. After Kazakhstan spent US$33 billion in just under two years to support its tenge, Nazarbayev fired his central bank chief on November 2 – but the tenge is still falling: it has lost nearly two-thirds of its value against the dollar in less than three months.
Again, retail traders and their customers are being hit. “I’ve raised my prices by as much as the tenge has fallen against the dollar,” says Nastya Zefteridi, who sells mid-range women’s clothes from South Korea in an Almaty market. “Of course it’s affected sales. But what else am I to do?” Turkmenistan devalued its manat by a fifth in January, and the value of Uzbekistan’s sum has plummeted by 80 per cent on the black market since the beginning of this year.
Recession in Russia also means less money to send home for the millions of Central Asian labour migrants working there. “The weaker rouble and falling employment in Russia has cut remittances to Central Asia, which are a critical source of income for many people in Tajikistan, Kyrgyzstan and Uzbekistan in particular,” says Nice.
Tajikistan is the most remittance-dependent country in the world and sends about half of all working-age males to work in Russia. Remittances account for about half of the country’s GDP, according to the World Bank.
Kyrgyzstan, meanwhile, is the world’s second-most dependent country, with remittances accounting for about a third of GDP. Remittances to Uzbekistan and Tajikistan have fallen by nearly half this year, Russian central bank data shows, and to Kyrgyzstan they have dropped by nearly a third.
Kanyshay Toktorova, a 49-year-old widow, now earns a few dollars a day selling apples in Osh, Kyrgyzstan’s second city, after recently losing her job as a cook in Russia. “I’d like to go back,” she sighs. “Here earnings are really small.”
The Russian Central Bank reported a 33 per cent fall in outward remittances in the last three months of 2014, while remittances in dollar terms fell by 43 per cent to Uzbekistan and 27 per cent to Tajikistan. Additionally, new Russian regulations that come into force in January bar migrants who overstay their visa for a year from re-entering Russia for 10 years. This, notes the World Bank, could result in many migrants heading home from Russia earlier than planned further hitting remittances.
Talant Usurov, an engineer who cannot find a job at home, was working in a printing house in Moscow and sending cash home to feed his young wife and children and their extended family. Forced to return to Kyrgyzstan this summer because the dollar value of his pay had plummeted with the crash of Russia’s rouble, Usurov is now driving a gypsy taxi in Osh.
“I can earn more working as a taxi driver here than I can in Moscow,” he says. Some states in Muslim-majority Central Asia are looking elsewhere in Asia for partnerships, including to the Middle East. Nazarbayev of Kazakhstan visited Qatar on October 26, securing a commitment from Doha to inject $100 million into a joint investment fund. In October, Japanese prime minister Shinzo Abe toured all five Central Asian states signing multi-million-dollar investment deals.
Outlook
As Central Asia tries to weather the economic storm, the prospects look none too bright. “The outlook looks poor in the near term,” says Nice.
“Russia looks to be heading for a second year of contraction in 2016, so we won’t see much pick-up in remittances. If oil prices remain low, it’s hard to see where growth is going to come from. Households, businesses and governments are all cutting back on spending and with commodity prices low, foreign investment into the region is also likely to be weak. Add to that high levels of political uncertainty in many countries and a very difficult few years lie ahead for all the countries in the region.”
The economic shocks will be long-lasting, the IMF’s Juha Kahkonen warned as he presented the organisation’s forecasts in Almaty, so governments need to carry out structural reforms to “raise the quality of education, promote financial development, improve the business environment and diversify exports”.
This, the IMF says, would help embattled policymakers create jobs, fight poverty and secure long-term growth.
Joanna Lillis is a freelance journalist based in Almaty.
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