Photo: iStock
Szabolcs Veres
15/01/2025 11:04
The notion of Central Asia being the "Dutch patient"[1] is a term used to describe a region that has experienced economic challenges yet has shown signs of positive growth. Geographically, Central Asia is a region bordered by the Caspian Sea to the west, China to the east, Afghanistan to the south, and Russia to the north. Comprising five former Soviet republics—Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan—the region's abundant natural resources and strategic geographic location, as well as its natural beauty and cultural heritage, rapidly transformed it into a major economic bloc by the first quarter of the 21st century. With a population of 82 million, Central Asia has become a dynamic market, attracting growing interest from Europe to Africa.
As in many regions, the political dynamics in Central Asia are initiated in early September, when the nation's economic condition and strategic outlook are placed under political scrutiny during annual reviews (in Kazakhstan), parliamentary elections (in Uzbekistan), or the establishment of economic development objectives. In Central Asia, however, the onset of this political season has centered more on a review of the three decades since independence than on preparing for current political events.
The economic developments currently unfolding in Central Asia also present significant challenges, as reflected in the growing social demands for political reform, the issue of a young and rapidly growing population, the need for sustainable economic development, and the diversification of regional economies. The structural changes in the region following independence in 1991—the transition from a planned to a market-based economy—have underpinned the strong economic growth since the 2000s. Following the dissolution of the Soviet Union in 1991, Central Asian countries were confronted with the imperative to transition from a centrally planned to a market-oriented economy, a shift that inevitably precipitated substantial economic challenges across the region. These challenges encompassed negative GDP growth, hyperinflation, the intricacies of privatization, various legal reforms, and social and political instability. In response to these challenges, Central Asian countries have implemented diverse development strategies, including a focus on infrastructure development and natural resource exploitation.By the turn of the millennium, these countries were experiencing a significant economic boom, contrasting starkly with the initial decade following independence in 1991.
Average GDP growth in Central Asian countries per decade in percentage terms
Average GDP growth of Central Asian countries per decade as a percentage | |||
1991-2000 | 2000-2010 | 2010-2020 | |
Kazakhstan | -2,7% | 8,3% | 3,9% |
Kyrgyzstan | -3,9% | 4,6% | 3,9% |
Tajikistan | -9,3% | 9,1% | 7,6% |
Turkmenistan | -2% | 8,7% | 9,3% |
Uzbekistan | -0,2% | 6,8% | 6,7% |
Central Asia | -3,6% | 7,5% | 6,3% |
Source: based on World Bank (WB) database
However, it should be noted that these indicators are largely attributable to low base effects, wherein positive shifts from initially low economic indicators have led to substantial improvement in numbers and percentages. The data demonstrate that GDP growth in Central Asian countries increased twofold by the end of the 2000s on a decadal basis and sustained growth above 6 percent in the second decade of the 21st century.
It is projected that all Central Asian countries will exceed the International Monetary Fund's (IMF) projected growth rate of approximately 4.2 percent for emerging markets and developing economies in 2024, with the region's economic growth in 2024 anticipated to be around 5 percent.
Optimal demographics for growth and innovation?
Central Asia, a region comprising approximately 82 million individuals (approximately 1% of the global population), is projected to experience a substantial increase in its population size by 2050, according to projections by the United Nations. This increase is estimated to reach 100 million. In comparison to the global average age of 30.6 years, Central Asia features a relatively younger population, with an average age of 26.6 years. This demographic trend is a point of strategic focus for governments in the region. Tajikistan has the lowest average age at 21.5 years, while Kazakhstan has the highest at 29.5 years. The economic role of the young population is reflected in the provision of labor, the easier diffusion of innovation, and the expansion of consumer markets.
However, a major threat in Central Asian countries is the so-called middle-income trap. The concept of the "middle-income trap" posits that attaining a certain level of income impedes a nation's ability to maintain competitiveness by specializing in the export of labor-intensive, low-cost products. The rise in wages, consequent to economic gains, renders previously lucrative sectors uncompetitive. To circumvent this predicament, Central Asian nations must prioritize higher value-added production segments. This will require strategic investments, the fortification and encouragement of advanced education and innovation capabilities.
Economic diversification is not only about exports
For Central Asian countries, which have historically relied on natural resources and agriculture, economic diversification is imperative. Geopolitical developments, marked by the Russia-Ukraine war, the US-China stand-off, and the situation in the Middle East, have resulted in volatile commodity prices. In this context, the countries of the region are pursuing strategies to mitigate the risks associated with commodity price volatility and transition towards a more stable and sustainable economic model.
In addition to exporting their own natural resources (oil, gas, uranium, etc.), each country is developing its own agriculture at a rapid pace. For instance, Uzbekistan is undertaking measures to diversify its economic portfolio and reduce its reliance on cotton by expanding the production of fruits, vegetables, and cereals. Turkmenistan is augmenting its exports through the introduction of novel petrochemical formulations and plastics products, which are intended to modernize its agricultural sector.
It is noteworthy that the Central Asian countries have demonstrated resilience in overcoming the numerous economic challenges that ensued following their independence in 1991. Nevertheless, the speed and extent of their progress differ, reflecting unique national circumstances. The economies of the Central Asian region have now reached a real turning point, akin to many other emerging economies worldwide. The advent of the 2019 novel Coronavirus (Covid-19) pandemic has necessitated the imposition of restrictions on economic activity in Central Asia, thereby accentuating social inequalities within the Central Asian region. Nonetheless, the region's economies, bolstered by its youthful population and its role in innovation and fintech, possess the potential to be well-positioned to confront the global challenges that lie ahead. However, the utilization of these strengths in pursuit of regional objectives remains uncertain. Furthermore, the extent to which the economies of Central Asian countries will be affected in the future by what is known in economics as "Dutch disease" remains to be seen. "Dutch disease," as it is termed in economic discourse, denotes a causal relationship between the accelerated growth of specific economic sectors, such as those exploiting natural resources like oil, gas, gold, uranium, and so forth, and the concomitant decline of other sectors, notably manufacturing and agriculture. In the present case, an overreliance on oil and gas extraction could present significant challenges for the region's economies.
Nevertheless, prior initiatives, such as the transition of the energy-intensive Kazakh economy towards nuclear energy — as evidenced by the referendum on October 6, 2024, where the Kazakh populace endorsed the construction of the nation's inaugural nuclear power plant — or the shift towards regionally substantial renewable energy sources, imply that Central Asian nations are not inclined to adopt the role of the "Dutch disease".
The author is a researcher at the Eurasia Center
[1] In economics, Dutch disease is the apparent causal relationship between the increase in the economic development of a specific sector (for example natural resources) and a decline in other sectors (like the manufacturing sector or agriculture).