Central Asia – New Dilemmas – Cooperation or?

Central Asia: Competition or Cooperation?

By Grigory Mikhailov

Central Asia is at a crossroads. International affairs are changing rapidly and affecting political and economic relations within the region and with external players. Will the desire for cooperation prevail over increasing competition?

The regional elites, under the influence of stereotypes, as well as internal and external propaganda, had an impression that things were not going too well for Russia. Only in recent months, the assessments of Russia’s prospects began to change for the better.

The conflict between the West and Russia, as well as the degradation of the system of international relations, have given  Central Asian countries a chance to rethink their role in the world. Opportunity to build new relationships with each other and push for the region’s economic development. After the start of Russia’s special military operation in Ukraine, the USA, EU, UK, Japan, Canada and several other countries began a campaign of economic pressure on Russia. Sanctions restrictions have affected many areas, including trade, finance, and transport. Disruptions in supply chains, financial constraints and asset freezes have led to a significant increase in the transit of goods to Russia through Türkiye, the Caucasus and Central Asian countries.

Through Kazakhstan, Uzbekistan and Kyrgyzstan, goods from the EU, China, the USA, South Korea and other countries arrive in Russia. Since March 2022, thousands of Russian businessmen and representatives of enterprises and companies have gone to Central Asia to negotiate cooperation. Business activity in the region has increased manifold. In coffee shops in Astana, Bishkek and Tashkent; negotiations are regularly held on the supply of aircraft engines, electronics, machine tools and dual-use products… The “hotter” the product, the higher the mark-up. In some cases, it reaches 250-300%. This extremely profitable business involves thousands of people, including representatives of the most influential local families.

Western Pressure to follow Illegal Sanctions

Western pressure cannot be called entirely ineffective. The activity of the envoys and the lobbyists they hired is causing nervousness among local officials and businessmen. Representatives of the US, UK, and EU are threatening to put countries, as well as politicians and companies associated with them, on sanctions lists. Another unpleasant circumstance is the increasing frequency of refusals to issue US visas to close relatives of local high-ranking officials, which was not previously practised. Trying to reduce possible damage, over the past year and a half, the elites have transferred some of the funds from Western banks to the United Arab Emirates and Southeast Asian countries but have not entirely gotten rid of their dependence.

Publicly, the authorities of the Central Asian countries try not to conflict with the United States. Officials regularly report that they fully comply with all US and EU sanctions requirements. In practice, cargo continues to go to Russia. This intractability is explained by a purely pragmatic consideration — the desire to make money.

The regional elites, under the influence of stereotypes and internal and external propaganda, had an impression that things were not going too well for Russia. Only in recent months did the assessments of Russia’s prospects change for the better. The reason for this was the failure of the Ukrainian offensive, Washington’s attempts to negotiate behind the scenes with Moscow, and data on the stability of the Russian economy.

New Industrialisation in Central Asia

The changes affected re-exports and the production of goods in the region. One of the most striking examples is the consumer goods industry. After Western companies left Russia, Central Asian textile manufacturers began filling the vacated niche. After the restriction on payments in foreign currencies, several Russian companies moved production to the region. Here, you can pay in rubles.

Re-industrialisation is not being observed only in Kyrgyzstan. Large-scale production with an eye on Russia is being developed in Kazakhstan and Uzbekistan. Large Western firms that left Russia moved part of their capacity to these countries. European companies also come here in search of cheap gas and electricity. Dozens of giants have launched or are preparing to launch production in Central Asia, including Samsung, Nestle, and Glock.

The Russian market is still of interest to the departed companies. To avoid scandals, some launch production in Central Asia under new brands. Kazakhstan and Uzbekistan are mainly fighting for the right to accept investors.

New logistics

The change in cargo transportation routes that occurred after the start of the special military operation provided a significant impetus to the development of logistics infrastructure in Central Asia. The sharp increase in demand for cargo transportation and warehousing services has led to the region’s massive construction of logistics centres. Countries are rapidly expanding routes (railways and roads). They are improving the operation of checkpoints at borders, attracting foreign specialists, and adjusting logistics. Officials negotiate project funding with China, the United States, Russia, the EU, Middle Eastern countries and Türkiye. 

China remains the most active external player, investing in developing local infrastructure and logistics.

Competition between Central Asian countries and foreign pressures

Thanks to an influx of investment and a sharp surge in transit volumes, additional funds have begun to flow into the budgets of the Central Asian countries. This has led not only to economic growth but also to increased competition between states in the region. The West’s deepening conflict with Russia and China, as well as the collapse of the traditional Western-dominated system of international relations, has led to a power vacuum in the region.

Russia is busy with other problems; the US and the EU are weaker than before. The old rules are dying out. However, the new ones have not yet been formulated. For some elites, geopolitical chaos is a threat to their position. For others, it is presenting new bright opportunities. Astana and Tashkent are gaining strength. Others are not prepared to give up on their share of prosperity.

Intraregional competition has been intensified by a sense of instability and growing competition between external players. Local elites regularly receive tempting offers or dark hints from Western players who want to prevent the growth of  China’s and Russia’s influence in Central Asia. The United States has repeatedly offered assistance in solving the problems of local airports and airlines, provided that the latter do not come under the control of Russian or Chinese companies. However, Washington did not object to transferring strategic facilities to companies from Qatar or the UAE.

Attempts at intraregional integration have become much more frequent. It would be beneficial to form common positions on critical issues and jointly defend them in negotiations with external players. However, accumulated contradictions between the countries of the region are hampering them. Simultaneously, the desire to overcome old grievances, compromise and negotiate is still too weak. Foreign players, particularly the US and EU, are using all legal and other tools to destabilise the region.

So far, the forces opposing closer integration are prevailing.

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