Japan hopes to rival China and Russia with
promise of major investments
Central Asia’s beleaguered economies may have found
another white knight in Japanese Prime Minister Shinzo Abe
whose high-profile visit in late October ended with a promise
of fresh investment injections worth a total of more than
¥3 trillion (US$1 = ¥120).
In his historic visit to Kazakhstan, Uzbekistan, Turkmenistan,
Tajikistan and Kyrgyzstan to shore up Japan’s political
influence, Abe’s delegation included representatives of 50
firms to help develop infrastructure and industrial projects.
With an eye on checking China’s international expansion,
Abe promised to help build the region’s infrastructure and
human resources. Japan is a late entrant to the ‘great game’
in Central Asia that once was the exclusive stronghold of the
former Soviet Union states even after their independence
from Moscow in 1991.
Abe scored his biggest success in Turkmenistan with the
conclusion of 10 agreements, mostly related to energy and
power, worth more than ¥2 trillion or nearly US$18 billion.
His meeting with President Gurbanguly Berdymukhamedov
will further open up Central Asia’s richest country to Japanese
involvement in developing gas-fired power plants and gas-
based chemicals production.
Japan is also angling for a role in the construction of the
proposed US$10 billion Turkmenistan-Afghanistan-Pakistan-
India (TAPI) pipeline to deliver natural gas from Central Asia to
South Asia. Most of that gas will be supplied by Turkmenistan,
which owns the world’s fourth largest natural gas reserves.
Another big beneficiary was Uzbekistan which concluded
agreements worth a total of ¥1 trillion to boost its energy,
transportation and communications infrastructure. Japan
has agreed to a ¥12 billion package in soft loans to help
Uzbekistan pay for a gas-fired cogeneration power plant. Abe
also agreed to provide aid to Kyrgyzstan and Tajikistan.
In his last stop in Central Asia’s largest economy, the
Japanese leader and Kazakhstan’s President Nursultan
Nazarbayev agreed to jointly tap the region’s uranium
resources to produce nuclear energy for electricity.
Abe undertook his six day visit to Central Asia, which
was previously not on Japan’s foreign policy radar, to counter
China’s fast-growing influence in the region. Since launching
China’s Silk Route strategy in Kazakhstan in 2013, President Xi
Jinping has been focusing much of Beijing’s political capital
and investment efforts on linking up Central Asia’s economies
with his country.
Kazakhstan again looks to China
Kazakhstan is hoping for China to come to the rescue again in
a repeat of 2008 - 2009 when its economy last encountered a
major downturn.
According to the IMF, Kazakhstan will have the region’s
worst performing economy in 2015, as its growth will slow
to just 1.5% from nearly a third of the previous year’s 4.3%
rate. A toxic combination of low oil prices, weak domestic
demand and decline in external trade will likely turn the
country’s years of fiscal and current account surpluses into
deficits in 2015.
Central Asia’s largest economy is also paying the price
for its heavy economic dependence on sanctions-hit Russia
and slowing China, an ironclad formula that produced annual
double-digit growth most of this century when those two
countries were super performers themselves. All of Central
Asia is hurting from Russia’s sharply devalued currency and
recessed economy hit by Western sanctions over Moscow’s
conflict in Ukraine.
In response, Kazakhstan devalued its tenge by 19% against
the US dollar in 2014 and allowed it to sink another 26% in
2015. But that won’t be enough to stop the current account
turning from a surplus of nearly US$6 billion in 2014 into a
deficit of US$5 billion in 2015 with inflation to surge past the
official target of 8%.
According to the World Bank, Kazakhstan’s dire condition
reflects the combination of “falling oil prices, recession in
Russia, declining confidence, and lower capital inflows.”
Kazakhstan relies on crude oil for about 70% of its export
revenues, and sales of various commodities to Russia for
around 7% of annual export earnings.
Thanks largely to Beijing’s financial and political support,
Kazakhstan, Turkmenistan and Uzbekistan were able to
develop the foundation of Central Asia’s new pipeline
network and infrastructure to export oil and gas to China. On
12 December 2009, President Nursultan Nazarbayev and other
Central Asian leaders together with China’s then president
Hu Jintao jointly inaugurated the Kazakh section that started
up the 1833 km Central Asia-China gas pipeline network.
Two days later, the Chinese leader was in Turkmenistan to
complete the launch of the new pipeline network that has
played a major role in Central Asia’s economic take-off this
decade.
From just over US$6.8 billion in 2005, Sino-Kazakhstan
trade rose to US$20 billion in 2010 and US$28 billion in 2013
as China’s gas demand surged. But reflecting the slowdown in
both economies and the decline in oil and gas prices, bilateral
trade value plunged by over 21% in 2014. The two sides have
scaled back their plans and are aiming to achieve bilateral
trade of US$40 billion by 2020 instead of 2016.
In a series of intense meetings between May and
September 2015, Nazarbayev and Chinese President Xi
Jinping agreed to strengthen ties and increase co-operation
in trade, and joint investments in energy, infrastructure
and high technology projects. The two leaders have signed
several agreements to implement 25 energy, industrial and
infrastructure projects worth a total of US$23 billion.
The Kazakh leader – who has been in power since his
country’s independence from the former Soviet Union in
1991 – has endeared himself to Xi with his pledge to support
Beijing’s most important projects, the Asian Infrastructure
Investment Bank (AIIB) and the revived expanded Silk Road.
Having already invested more than US$17 billion in
Kazakhstan, China expects to face renewed competition from
the US, which says its companies have poured in a total of
US$21 billion into the country. Chinese firms will implement rail
and road projects through Kazakhstan as part of Beijing’s plan
to link up the continents of Asia and Europe under its Silk Road
strategy.
16
World Pipelines
/
FEBRUARY 2016
