Political Developments
On July 8, Chinese embassy in Kazakhstan warned Chinese citizens that Kazakhstan had an “unknown pneumonia” outbreak more deadly than COVID-19. Chinese embassy said that “unknown pneumonia in Kazakhstan caused 1,772 deaths in first six months of the year, including 628 people in June alone.’’ The following day, Kazakh health ministry acknowledged the presence of viral pneumonias of “unspecified” cause, but denied that outbreak was new or unknown. The newly appointed health minister declared that the claim published by Chinese media “does not correspond to reality”. Kazakhstan took umbrage at false reporting in Chinese state-run media about source of pneumonia being more dangerous than Covid-19.
U.S. Secretary of State and Ministers of Foreign Affairs of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan had a virtual meeting in C5+1 format. They had wide-ranging discussions on mutual efforts to build economic resilience and further strengthen security and stability in Central Asia and the region. Participants expressed strong support for efforts to peacefully resolve the situation in Afghanistan and to build economic and trade ties that would connect Central Asia to markets in South Asia and Europe. They agreed to continue strengthening joint work within the aegis of the Trade and Investment Framework Agreement (TIFA) and to work to further advance cooperation in the C5+1 format. In order to strengthen cooperation in the areas of energy and environment, the Ministers agreed to hold an expert meeting of a working group to discuss integration of renewable energy technologies and incentives to attract private sector investment, as well as cooperation on air and water quality. They agreed to continue joint work within the framework of C5+1 Security Working Group to discuss ways to promote secure and effective borders that allow free flow of goods, prevent trafficking of persons and illicit goods, nuclear and radiological safety, and increase regional cooperation on border security.
Foreign ministers of China and five Central Asian countries Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan held their first meeting in a video conference format to discuss cooperation amid coronavirus pandemic. Apart from situation over coronavirus, participants discussed development of regional safety, as well as mechanisms for economic growth. Chinese State Councillor and Foreign Minister Wang Yi said that cooperation between China and Central Asia (C+C5) is based on common needs of both sides and not against third parties, nor will it affect the bilateral and evolving cooperation in Central Asia. He said that China opposed any attempts by external forces that may lead to ‘colour revolutions’ or ‘’the zero-sum game and interference in internal affairs of countries of the region under the pretext of human rights.” Wang put forward suggestions to build the China-Central Asia health community, establish a mechanism for sharing information on major diseases, and share experience in epidemic prevention. Ministers supported synergy between Belt and Road Initiative and development strategies of Central Asian countries and stressed need to promote interconnectivity, agricultural cooperation and high-tech teamwork in areas like e-commerce, artificial intelligence and big data. The foreign ministers agreed to hold the meeting on a regular basis to jointly cope with challenges and seek prosperity.
Since the start of COVID-19 outbreak, Turkmenistan is among the few countries that have not recorded any case of coronavirus infections. Experts believe it is unlikely that country has been left untouched by the pandemic and chalk it up to Turkmen government not being forthcoming about the global health crisis and its impact in the country. Turkmenistan insists that the country does not have COVID-19 cases. It however suggests that some viruses ‘‘might be transported by toxic dust storms’’ formed of lakebed sediments of the Aral Sea. In a statement, Turkmenistan claimed the government has taken several measures to prevent the spread of disease in the country from early stages of outbreak. In June, US Embassy in Ashgabat issued a health alert for the country. Turkmenistan government took issue with US Embassy’s alert and said it was inaccurate. WHO Office in Europe said that it supports and approves all measures taken by Turkmenistan to prevent the coronavirus outbreak in the country. WHO experts say that the country has all facilities for testing COVID-19. It recommended to strengthen communication messages to the population and to convey necessary information on preventive measures to the public.
China’s mass internment of a reported one million mainly Uygur Muslim has triggered large public protests in Kazakhstan, Kyrgyzstan and Tajikistan. Beijing denies claims that the detainees are mistreated and says the camps are for re-education and training.
Kazakhstan had quickly introduced a national lockdown and travel restrictions in mid-March to stem the pandemic, but faced a rise in infections after it lifted the restrictions in May. Once quarantine measures were eased, many Kazakhs began to ignore social-distancing guidance. Many underestimated risks of virus: they hurried to offices, cafes, pubs, parks and fitness centres. Families gathered for large weddings, birthdays and funerals. Soon, initial optimism about government’s handling of virus was replaced with panic, helplessness and disillusionment. In late June, Kazakh President fired the nation’s health minister, blaming him for flaws that triggered what authorities called a second wave of contagion. The new Minister was given a special status, and Ministry given broader powers for interagency coordination to counter the epidemic. Kazakhstan imposed a new two-week nationwide lockdown in early July to contain the outbreak. This was extended by further two weeks till 3rd August with offer of financial aid to those who lost their source of income. Kazakhstan became first country in the world to enter a second nationwide lockdown which restricted public gatherings and banned family and holiday gatherings.
Amid the pandemic and citizens’ mourning for their family members, online concerts and fireworks were organised on July 6 to celebrate Capital Day in Nur-Sultan city, which coincided with 80th birthday of Nazarbayev, “leader of the nation”. Authorities said that they hoped to cheer up front-line medical workers. In response to overwhelming public criticism, government declared July 13 a day of national mourning for COVID-19 victims. Such public acknowledgement of failure is exceptional. Kazakh president threatened the possible dissolution of the entire cabinet if situation did not improve.
Uzbekistan imposed a second lockdown between July 10 and Aug 1 to curb a new surge in coronavirus cases since the easing of its first set of restrictions in late May and early June. Uzbekistan limited movement of vehicles and closed non-food shopping malls, markets, parks, cafes, restaurants and sports and entertainment venues. Uzbekistan saw a surge in fresh COVID-19 cases in June after lifting many of the restrictions introduced earlier.
In an appeal to the nation in March, Nazarbayev, who retains powerful but loosely defined institutional sway through his bespoke Elbasy “Father of the Nation’’ role, called upon businesses and wealthy to contribute to support anti-coronavirus efforts. To get the ball rolling, his own Foundation of the First President gave 200 million tenge ($450,000). Luxembourg-based mining conglomerate Eurasian Resources Group, controlled by stalwarts of the Kazakh tycoon scene donated 4.5 billion tenge ($11 million). A similar amount came from the Halyk Charity Foundation, headed by Dinara Kulibayeva, who is Nazarbayev’s daughter and the wife of multibillionaire Timur Kulibayev. State-owned companies were somewhat less generous. Baiterek, a holding company mandated with helping develop a sustainable economy in Kazakhstan, donated 1.5 million tenge ($3,700). Beyond a short list of rich businesspeople, a few dozen regular citizens comprise the sponsors, a fact that confirms that it was established for political purposes rather than for philanthropy. Elections for lower house of parliament, Majlis, are scheduled to take place no later than January 2021. There is little prospect of Nur Otan losing its overwhelming, state-aided dominance in the legislature – it currently holds 84 out of the 98 available seats. Still, Birgemiz appears to have been designed in part to mollify an electorate getting increasingly vocal and disillusioned with the ruling dispensation.
Economic Developments
International Monetary Fund (IMF) has revised downwards its growth projections for Central Asia as economies were hurt worse than expected by the double blow of lower oil prices and coronavirus crisis. The pandemic hit sectors such as tourism and trade, as well as low oil prices and crude production cuts have strained finances of regional oil exporters and impacted remittances. Recovery is expected to be more gradual than previously forecast, in line with a weaker global recovery. Worsening inequality and rising unemployment could trigger social unrest and political instability, while a potential decline in remittances could dampen recovery. The unusually high level of uncertainty regarding length of pandemic and its impact on firm closures, resulting in downside risks (including social unrest and political instability), and potential renewed volatility in global oil markets dominate the outlook. The pandemic will continue to test countries’ health capacity and economic resilience. While ensuring strong health systems remains the immediate priority, governments also need to focus on supporting economic recovery and setting up resilient and well-targeted social safety nets.
Natural resources account for roughly 65 to 75% of exports in Kyrgyzstan, Tajikistan and Uzbekistan, and more than 90% in Kazakhstan and Turkmenistan. Central Asia’s GDP may contract by as much as 5.4% by end of the year, according to World Bank. But in this bleak economic climate, China is finding ample opportunity to expand its influence. While China’s trade with the region crashed in the first quarter, its thirst for energy is beginning to pick up at a time when prices are at a historic low. As relations between Central Asia and China grow increasingly asymmetrical, the region’s leaders are likely to find themselves facing an ever more assertive Beijing. In the short term, China is buying less Uzbek and Turkmen gas and more from Kazakhstan. The region’s lack of export options, combined with growing global LNG supplies and China’s long-term push toward reduced dependence on coal, will serve to increase China’s negotiating power in the region. As China cuts supplies from Turkmenistan and Uzbekistan, Chinese companies can play regional actors off against one another to gain more favourable terms and expand its political clout. This is bad news for Central Asia, where economies are already struggling to pay back loans to Chinese banks. Pandemic-induced industrial disruption may result in Chinese firms seizing opportunities to enter into joint ventures in exchange for debt relief.
China remains the largest creditor, accounting for anywhere from 50 – 80% of new foreign debt in Central Asia. Growing debts also place the region in a precarious geostrategic position. Unlike the World Bank, Chinese loans carry higher interest rates and use national assets as collateral. In the past, debt-burdened Tajikistan has paid off debts to China by granting mining rights, allowing a military base on its territory, and even ceding 0.7 percent of its land.
Transit volume of cargo through Kazakhstan increased 54% from January to June as compared to same period last year. Transportation reached a capacity of more than 450,200 twenty-foot equivalent (TEU). In June, 2020, despite the impact of pandemic and economically difficult situation, about 105,000 TEU were transported through Kazakhstan, which is twice the quantity in June 2019.
Kazakh President ordered the cabinet to resuscitate the economy, which shrank 1.8% year-on-year in January-June as the services sector fell significantly by 5.6% due to first lockdown in March-May and the key oil and gas sector suffered from a crude price drop. Tokayev said the government would allocate an additional 150 billion tenge ($363 million) towards combating the COVID-19 outbreak and urged the central bank to lower its inflation target to 8.0-8.5% from 9.0-11.0% this year. Decline in receipts in budget for 2020 will amount to 1.7 trillion tenge. Quarantine and lower oil prices led to a sharp reduction in budget revenues. Budget stability is being achieved through transfers from the National Fund. According to forecasts by International Monetary Fund and World Bank, Kazakhstan faces its largest economic slowdown since the break-up of the Soviet Union, with GDP growth expected to collapse from 4.1% in 2019 to -2.7 % in 2020 due to coronavirus-induced crash of international oil prices.
In June, Kazakhstan fulfilled its obligations to reduce oil production under the OPEC+ agreement by 105%. In May, Kazakhstan had fulfilled its obligations only by 71%. It intends to compensate for the shortage in August and September. Kazakhstan is now planning to produce 85.2 million tons of oil in 2020, according to energy ministry. Previously, the country had announced it would produce 86 million tons. Kazakhstan is planning to produce 86 million tons in 2021, and 89.6 million tons in 2022. It produced 90.5 million tons of crude oil in 2019. As of today, Kazakhstan is ranked the world’s ninth-largest crude oil exporter and holds three percent of the world’s total oil reserves, placing it at number 11 globally and making it the third-largest oil producer in the Caspian region, after Russia and Iran. OPEC+ had agreed in April to reduce oil production by 9.7 million barrels per day in May-June, and then ease these to 7.7 million bpd, to stay in effect until the end of the year. Then, from January 2021, the production cuts would be further eased to 5.8 million bpd, to remain in effect until end-April 2022.
Asian Infrastructure Investment Bank (AIIB) has approved a loan of EUR661.8 million (approximately $750 million equivalent) to provide budgetary support to Kazakhstan in mitigating adverse impacts of COVID-19 on health, income and economic opportunities of the country’s population. The pandemic is disrupting Kazakhstan’s economic activities. Employment and livelihoods are adversely; impacted, particularly among the poor and vulnerable. Women are likely most affected as they account for more than 65 percent of labour force in hard-hit sectors including hospitality, education and retail trade. The oil price shock has significantly brought down export revenues. Without a fiscal response, the economy could contract in real terms by 5.5 percent in 2020. The loan will finance Kazakhstan’s COVID-19 Active Response and Expenditure Support (CARES) Program, which supports the country’s immediate COVID-19 health policy response, social protection and employment recovery measures, as well as stimulus measures. This financing will fund measures to mitigate impact of higher food prices on vulnerable groups, an increase in social payments, new tax incentives to alleviate financial burden of businesses and cash payments to the unemployed.
World Bank has approved a $500 million loan to Kazakhstan to develop farming as part of the Sustainable Livestock Development Program meant to support sustainable, inclusive and competitive beef production in Kazakhstan. The funds will be used to improve veterinary services and animal registration systems, expand farmer-oriented service delivery and enhance agri-environmental policies over the next five years.
Tajikistan’s gross domestic product growth slowed to 3.5% in January-June compared to 7.5% in first half of 2019. Tajikistan depends heavily on remittances from migrant labourers working in Russia and Kazakhstan whose energy exports took a hit from the oil price drop. China is a major investor in Tajikistan and a number of industrial projects involving Chinese companies have been delayed as Chinese personnel could not enter Tajikistan due to COVID-19 border closures. Dushanbe slashed its 2020 budget revenue target by 9.4% and reduced the GDP growth outlook to 4.7% from 7.8%. It has been in talks with global lenders about debt relief and emergency funding.
India-Central Asia Relations
President of India accepted credentials inter alia from Head of Mission of Uzbekistan Akhatov Dilshod Khamidovich virtually through video conferencing.
India and Kazakhstan decided to institutionalise their partnership in international peacekeeping operations by establishing a joint peacekeeping establishment that will be built by New Delhi. The expectation is that facility at Kazakhstan Partnership for Peace Training Centre (KAZCENT) in Almaty will be ready in three months. The fact that the centre is located at the Kazakh Ministry of Defence indicates the mutual trust of India and Kazakhstan.
Kazakhstan will buy medical drugs inter alia from India to address the country’s shortage. Kazakh Health Minister said that domestic drug producers work in 3 shifts operating to full capacity.
Indian company, Cadila, inter alia announced an investment of $50 million in a pharmaceutical plant in Andijan region of Uzbekistan. Last year, prestigious Indian educational institutions, Amity and Sharda universities, opened campuses in Tashkent and Andijan respectively. Following the visit of a large business delegation from Gujarat last year, investment and cooperation proposals emerged in a wide variety of sectors, including agriculture and food processing; automotive parts and textiles, pharmaceuticals and healthcare; IT and innovation; education and capacity building; hotels, tourism and hospitality; construction and real estate; and energy. Both sides are actively pursuing these proposals.
