Global Economics

Kazakh and Uzbek Economies Diverge


Since the end of the Soviet Union, Kazakhstan's more liberalized economy has far outpaced that of neighboring Uzbekistan, which remains hostile to private wealth

The two most advanced economies among the five post-Soviet Central Asian states have followed very different roads since independence, especially in the pace and degree of economic liberalization. The gap has narrowed somewhat as Kazakhstan and Uzbekistan both took drastic measures to mitigate the effects of the economic crisis, but the essential difference remains and its consequences reach far beyond the sphere of economics.

Uzbekistan began seriously to implement a nationwide privatization process that included major industries only in 2007, far behind Kazakhstan, where this stage in national economic development began soon after independence from the Soviet Union in the early 1990s.

Today, the Kazakh economy far outpaces that of Uzbekistan, the most populous nation of the former Soviet Central Asian republics. Kazakhstan, with a population of 15 million, has a gross domestic product nearly five times greater than Uzbekistan, which is nearly twice as populous according to World Bank estimates.

A clear and painful demonstration of this wide gap came this winter. In February, the bodies of two men, two women, and a child were found in a burnt-out shack in Almaty, the commercial capital of Kazakhstan. Identified as migrants from Uzbekistan, they most likely died from the effects of toxic smoke emitted from a portable stove fueled with anything burnable they could scavenge from the nearby city junkyard. The jerry-built shack then went up in flames.

Uzbek migrants are a common sight in Almaty. Not quite as numerous in major cities of the former Soviet Union as before the economic crisis hit, many Uzbeks are still working away from home. They often live in miserable conditions.

ECONOMIC FREEDOM AND POLITICAL LIBERTY

The two economies grew dynamically, averaging 8 to 10 percent per year from 2000 to 2007, largely thanks to exports of natural resources such as oil, gas, and minerals. Then the global financial crisis blasted both the state-dominated Uzbek and the comparatively more open Kazakh economy with equal force.

Since the crisis began to bite in late 2007, Astana has invested some $19 billion – about 15 percent of annual GDP – to support the banking system and the overall economy.

In both countries, the authorities' anti-crisis policies rested on massive regulation of the economy, seeking to control economic processes at a deep level.

Astana says that such steps were needed to get the country over the worst of the crisis. President Nursultan Nazarbaev said the measures were indispensable because "if we don't save the banks on Friday they could go bust next Monday."

Some voices have been heard expressing concern over this decrease in economic freedom for individuals and the increased control of the central government over the economy.

Aigul Tulembayeva, a professor at the Kazakh National University in Almaty, says the government's massive intervention is justifiable only as an emergency measure. Further down the road, however, Kazakhstan's economy must be fundamentally transformed in order to make it less dependent on natural resources and on massive state control, Tulembayeva says.

THE WIDER IMPACT

One cannot say that Kazakhstan's political regime is a paragon of democracy and wise policy-making. Oligarchic behavior among the political elite and widespread corruption are creating big problems in Kazakhstan, too. At the same time, a comparatively higher level of economic freedom and more liberal economic legislation contributed to the Kazakh economy's outperforming its neighbor.

For sure, exploitation of Kazakhstan's abundant natural resources also played a large role in the balance sheet. Possessing 3.2 percent of known world oil reserves, Kazakhstan ranks among the world's 10 largest copper producers and 10 largest wheat exporters, and is the No. 1 producer and exporter of uranium.

Uzbekistan, although less blessed with natural resources, has its own substantial underground wealth, particularly in gold and natural gas. But unless the economic freedom deficit is closed and conditions for private business thoroughly liberalized, it's likely that the country's economy will continue to lag behind.

Establishing a firm basis for the unimpeded development of democracy and the market economy in Central Asia is important not only for the nations and people of the former Soviet states. Creating the conditions for economic development is crucial to building a lasting peace in Afghanistan, a task the United States has made a top priority and which is important for Europe and the international community as well.

Greater cooperation among economically unfettered Central Asian states will bring positive spillover effects to Afghanistan. If for that reason alone, it is vital that Western governments continue to encourage the Central Asians to further liberalize their economies and political systems.

AN ESSENTIAL DIFFERENCE

One crucial difference between the two countries' economies lies in the contribution of the private sector to overall economic performance.

Private business and wealthy business people play a much larger role in Kazakhstan than in Uzbekistan, where the central government is still the main economic actor. As the Economist Intelligence Unit stated, Tashkent has been hostile to allowing the development of an independent private sphere over which it would have no control. The Uzbek middle class has been marginalized economically and thus politically.

No legal political opposition exists in Uzbekistan. Moreover, it appears that the authorities are trying to suppress the most independent of the country's wealthy business owners. The independent news website Uzmetronom recently reported the arrests of some of the country's wealthiest people, including factory directors, business owners, and financiers. It's likely that their businesses will be expropriated by the government. President Islam Karimov's reported statement in December that "there will be no tycoons" in Uzbekistan appears to have sparked the arrests and the harassment of others.

Barriers to private business such as numerous taxes, duties, and fees, and complicated regulations on the activity of entrepreneurs enacted over the 20 years of Uzbekistan's independence – all this has fostered a sharp fall in living standards for much of the population amid widespread joblessness.

One effect of the crippled economy has been labor migration on a large scale. Uzbeks – along with many others from the poorest regions of Central Asia – can be seen in other post-Soviet states, typically working ill-paid jobs regardless of their education and experience. Leaving their native country in the hundreds of thousands, they often have no choice but to take the jobs that local people despise.

One of the lucky ones, an Uzbek lawyer working abroad for a well-known international legal firm, once said something to me that sums up the sense of shame many Uzbeks feel over Karimov's economic policies. "Whoever saw this before, crowds of Uzbeks doing unqualified jobs, sweeping the streets in other countries' towns?" he asked angrily. "Donkeys," he added, meaning the Uzbek leader and his intimates as well as their general policy line.

As this young man implied by the word, the pitiable state of much of the Uzbekistani population came about precisely because of that policy line: a policy of neglect of fundamental political and civil liberties and of the right of ordinary citizens to engage in free private enterprise.


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