Posted on Nov 17, 2021
“Central Asia matters to Europe”, European Commission President Ursula von der Leyen emphasized at the November EU-Central Asia Economic Forum, the first high-level gathering of its kind. Indeed, Central Asia has increasingly shaped up as an important security partner of Europe’s and destination for investment.
The congenial atmosphere at the recent economic forum suggests that still-closer ties are likely ahead. Central Asian representatives showed an appetite for more ambitious engagement with the EU, offering up commitments on climate issues and creating a better business environment and showcasing political and economic reforms. 30 years into their independence, Central Asian countries—particularly Kazakhstan and Uzbekistan— are coming into their own and taking the steps to modernize their societies that will allow them to become closer partners with the EU.
Bolstering economic potential with broad reforms in Kazakhstan.
Kazakhstan is undisputedly the region’s economic juggernaut, with an upper-middle-income economy that has already bounced back to pre-pandemic levels. Nur-Sultan has ambitious aspirations, too—the country has fixed a goal of becoming one of the world’s top 30 economies by 2050. Though Kazakhstan’s economy has already made huge strides since independence—GDP increased 2.8-fold between 2000 and 2014 and the share of people living in poverty dropped sharply—observers such as the OECD have warned that the next phase of Kazakhstan’s economic transformation will be more challenging, requiring large-scale reforms to expand the private sector and strengthen the rule of law.
Nur-Sultan appears both aware of these necessary reforms and willing to implement them. Since his election in 2019, Kazakh President Kassym-Jomart Tokayev has made no secret of his aim to enact broad economic and political reforms. Despite the pandemic, a number of initiatives have already been put into place. The right to organize peaceful assemblies has been strengthened, while the organization of direct mayoral elections for the first time was a watershed moment in Central Asian democratization.
Kazakhstan also officially abolished the death penalty in early January, following the country’s accession to the UN’s International Convention on Civil and Political Rights. Further important reforms are on the cards—in June, Tokayev signed a decree intended to improve Kazakhstan’s human rights record through measures targeting a wide variety of issues, including by addressing discrimination against women, improving protection for citizens with disabilities, forging better relations with NGOs and stamping out ill treatment of prisoners.
Once criticized for prioritizing economic development over political reforms, Kazakhstan’s leadership now seems to have concluded that the two can be carried out in tandem. “The [human rights reform package announced by Tokayev] is an important strategic decision aimed at strengthening the economic side of Kazakhstan’s development”, a Kazakh foreign ministry official charged with human rights explained. “We can expect the bolstering of economic relations with the countries of Europe, America and Asia leading up to the formation of a powerful regional economy.”
Major changes in Uzbekistan, at least on economic issues.
Kazakhstan’s southern neighbor Uzbekistan is still trying to pin down the right balance between shepherding its economic growth and addressing social and human rights issues. Five years into Uzbek leader Shavkat Mirziyoyev’s efforts to make the country attractive for international business, necessary political and social reforms are progressing more slowly than initially hoped, but economic reforms are beginning to bear fruit.
When Mirziyoyev took office in 2016, he inherited an economy plagued by high unemployment, rigid exchange controls which had created a flourishing black market and a surfeit of state-owned enterprises. Mirziyoyev quickly moved to liberalize the country’s visa policy, a major shot in the arm for Uzbekistan’s nascent tourism industry. Tax reforms followed in a bid to attract more foreign investors, while the liberalization of the country’s foreign exchange system marked a substantial step forward which has curbed the black market in currency and reduced economic distortions. Though the Uzbek economy remains dominated by state-owned enterprises, a private sector is beginning to take shape, and the government earmarked some $9 billion in state aid to help new small businesses get off the ground.
The reforms are starting to show their effects—Uzbekistan was one of only a handful of countries to achieve positive growth in 2020 despite the global coronavirus pandemic. The country still has plenty of issues to address, of course—average incomes remain far too low, with Uzbekistan’s per capita income of $7,420 trailing far behind Kazakhstan’s $24,080. With Mirziyoyev recently elected to a second five-year term, the next challenge will be following through on plans to reduce the number of state-owned enterprises by 75% by 2025.
Early signs of progress in Turkmenistan and Tajikistan.
Turkmenistan and Tajikistan are far behind Kazakhstan and Uzbekistan in terms of democratization and economic reforms, but there are a handful of encouraging signs. At the recent EU-Central Asia Economic Forum, Turkmenistan—which largely remains a planned economy—agreed in the joint statement to pursue privatization of state-owned enterprises and improve their governance, and Ashgabat has hosted a full EU delegation since 2019, tasked with monitoring the human rights situation in the country and finding opportunities for EU-Turkmenistan cooperation.
Tajikistan is also beginning to carry out reforms as it hopes to secure an Enhanced Partnership and Cooperation Agreement (EPCA) with the EU such as the one Kazakhstan has had since March 2020. In particular, Dushanbe has launched a massive overhaul of its tax code in order to stimulate the country’s lagging private sector. The World Bank has applauded the initiative, committing $50 million in grant financing for the tax redesign and suggesting that it will allow the private sector to play an increasing role in fostering innovation and creating employment in Tajikistan.
As Ursula von der Leyen noted at the recent forum, there is tremendous potential for a closer partnership between the EU and Central Asia, if Central Asian countries take the necessary steps to shore up their business climate and rule of law. Encouragingly, the region’s largest economies are already moving to do so, while smaller economies are dipping tentative toes into the pool of necessary reforms.
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