extend its terror into the region and beyond, most notably
into China. The US and Japan are loosely allied against China
and Russia, while India has a foot in each camp, and they are
all sworn to fight ISIS. The US – backed by its European allies
– and Russia are fighting a new Cold War, but may have to
set aside their differences to stop the greater threat posed by
ISIS. The West covets greater economic ties with China, yet
wants to check Beijing’s global rise, which has Russia’s support.
In Central Asia, Russia has roped in Kazakhstan and
Kyrgyzstan – along with Belarus and Armenia – to form the
Eurasian Economic Union (EEU), which will support China’s plan
to revive the old Silk Route under its ambitious ‘One Belt One
Route’ strategy to connect the markets of Asia, the Middle
East, North Africa and Europe.
China is deepening its reach into Central Asia with plans
for more infrastructure investments, focused particularly
on the region’s two most hydrocarbon-rich countries –
Turkmenistan and Kazakhstan – to aid its push into the Middle
East and Europe. Laggards Japan and India are making up for
lost time with the Prime Ministers of both countries leading
business and political delegations for the first time to meet
the region’s leaders in recent months. In early November,
the US despatched State Secretary John Kerry to Kyrgyzstan,
Uzbekistan, Kazakhstan, Tajikistan and Turkmenistan to push
back against growing Chinese and Russian influence, and a
rapidly expanding ISIS.
The world’s rush into Central Asia has gained urgency
in recent months amid mounting evidence of the region’s
alarming economic decline that began when oil and gas prices
started crashing in mid 2014. In a grim update in October
2015, the International Monetary Fund (IMF) warned that the
CAC’s economies are still reeling from “a wave of external
shocks” caused by falling commodity prices, sharp declines
in the value of their currencies, the contagion effects of
Russia’s recession and political fallout with the West, and
China’s slowing economy. The region’s economic problems will
accentuate threats to its political stability as rising inflation
and unemployment are adding to domestic discontent
resulting from slowing growth.
The IMF’s assessment was issued before geopolitical
threats to the region intensified in November following ISIS’s
terror attacks in Paris that sparked an increase in French and
Russian bombing raids in Syria, and Turkey’s shoot-down of a
Russian military jet plane. US, Russian and Chinese intelligence
have warned of ISIS’s escalating activities. The conflicts in
Syria and Iraq are threatening to spill over into the CAC
region.
Region’s oil importers not benefitting from low
prices, says IMF
The IMF stated that the CAC region will continue to reel from
the impact of weak oil prices through 2016, with little hope of
their economies recovering to the levels before the collapse
of the energy markets in mid 2014.
“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 the region,” the IMF said
in its External Shocks Dim Growth Prospects for Caucasus,
Central Asia survey.
Growth will barely recover in 2016 despite improving trade
with Russia and the Eurozone, as well as the short term impact
of the wave of currency depreciations recently undertaken by
the region’s beleaguered governments.
Despite weak energy prices, the CAC’s four oil importers
will suffer more as they remain largely dependent on worker
remittances and trade with its four oil exporters and Russia,
said the IMF. Armenia, Georgia, the Kyrgyzstan and Tajikistan
will feel the dual impact of Russia’s recession and the rouble’s
collapse.
The IMF expects the economies of Georgia and Kyrgyzstan
to each grow by 2% in 2015, down sharply from 4.8% and 3.6%
respectively in 2014. Armenia’s economic growth will fall to
2.5% from 2014’s 3.4%, while Tajikistan’s will plunge by more
than half from 6.7% to 3%.
Despite the weak outlook on energy prices, Azerbaijan,
Kazakhstan, Turkmenistan and Uzbekistan can still rely on
revenue from oil and gas exports, and their hoard of past
savings.
“The region’s oil exporters have been able to draw on
savings built up when oil prices were higher. In the short term,
this has helped them tackle their immediate fiscal challenges,
but more needs to be done,” said the IMF. In the medium
term, the fund recommends that they consolidate their fiscal
position, implement structural reforms and intensify efforts to
diversify away from oil.
The IMF expects the region’s star economy, Turkmenistan,
to maintain its turbo-charged performance by growing 8.5%
in 2015 and 8.9% in 2016, down slightly from 2014’s 10.3%.
Uzbekistan’s economy will also put in a world-beating
performance to expand by 6.8% in 2015 and 7% in 2016, to
follow on 2014’s 8.1%.
The region’s largest economy, Kazakhstan, will be its worst
performer with growth expected to collapse to just 1.5% in
2015 and 2.4% in 2016. Azerbaijan’s economy will expand by 4%
in 2015, making it the only one in the region to show year-on-
year improvement compared with 2.8% in 2014.
Table 1. CAC population and GDP in 2014. Source: World Bank
Population
(million)
GDP
(US$ billion)
Average GDP US$
per capita
Armenia
3.0
10.9
3627
Azerbaijan
9.5
75.2
7916
Georgia
4.5
16.5
3670
Kazakhstan 17.2
212.2
12 337
Kyrgyzstan 5.8
7.4
1275
Tajikistan
8.4
9.2
1095
Turkmenistan 5.3
47.9
9038
Uzbekistan 30.7
62.6
2039
TOTAL
84.4
441.9
5236
14
World Pipelines
/
FEBRUARY 2016
