Economic Developments - January 2019

Uzbekistan is planning to get US$ 4.1 billion in foreign direct investment in 2019, which is 71% more compared to 2018 (US$2.4 billion). Several tax and financial reforms were implemented to further improve the investment climate. Main investors are Russia, Turkey, China, Kazakhstan and South Korea. Tourism, agriculture, light industry, construction industry, oil and gas industry, etc. are most popular sectors for foreign investment. 

Kazakhstan is not in favour of Russian view to introduce a single electronic currency in territory of Eurasian Economic Union. Conceptually, the currency will be like European ECU which preceded the euro. According to Russia, such electronic means is needed to simplify mutual settlements under the threat of anti-Russian sanctions. Astana believes there is no need to introduce a single currency in EAEU.

Kazakh GDP grew by 4.1% in first 10 months of 2018. Kazakh growth rebounded to 4% in 2017, up from 1% in 2016. Growth outlook for 2019 has been changed to 3.8%, down from previously anticipated 3.9%. Adjustment is due to lower expectations for average crude price. Per capita GDP will be US$9,400 in 2019.

In 2018 Kazakhstan will produce 90.3 million tons (mts) of crude which will be 4.7% higher than in 2017 (86.2 mts). Oil exports will reach 71.5 mts, or 2.4% higher than 2017. Kazakhstan has planned major maintenance works for its three major upstream projects in 2019 to help it to meet commitments under the OPEC-led production cut deal. Under the six-month deal by OPEC and non-OPEC countries, Kazakhstan is to reduce its output by 40,000 b/d.

As part of its strategic energy plan, Uzbekistan has decided to build a Russian-designed third-generation VVER two-unit Nuclear Power Plant with a capacity of 2.4 GW. This plant will generate approximately 15% of Uzbekistan’s power needs by 2030. 

Turkmenistan is on brink of economic collapse, raising questions about the sustainability of its governing model. Ashgabat’s megaprojects have wiped out the country’s foreign currency reserves at a time when low hydrocarbon prices prevent it from replenishing its coffers. As inflation rises, the population has been forced into greater poverty. The government has stopped subsidies for basic goods (electricity, gas, water and salt) from 1 January 2019 breaking the social contract that has existed since 1992. 

Kyrgyzstan is expected to grow at 3.2% in 2019. Kyrgyz growth stood at 4.6% in 2017. Expansion of 2.7% is expected for 2018 spurred by a rise in non-mineral exports. This has been further driven by integration with Eurasian Economic Union (EEU) and restoration in remittances received due to Russia’s moderate economic recovery. Remittances from Russia make up around one-third of Kyrgyz GDP. Kyrgyzstan owes approximately 40% of its foreign debt (US$1.68bn) to China. This is likely to grow again in 2019, especially given Beijing’s active efforts to push infrastructure projects under its Belt and Road initiative.

Kazakh President Nursultan Nazarbayev has quashed rumours and said that no snap presidential election will be held. He said that despite the very high turbulence in world economy, sanctions, and trade wars, Kazakh economy has grown at more than 4% which is above world level. Inflation remained in range of 5-7%. Gold and foreign exchange reserves increased to US$88 billion. 

Russia extended for another six months restrictions on transit of goods from Ukraine to Kazakhstan and Kyrgyzstan. In December 2015, Russia adopted several decisions that limited, and in some areas completely abolished, trade relations with Ukraine. 

World Bank approved a US$100 million loan to Uzbekistan as part of Integrated Development of Medium Cities project. Project will help improve living conditions in middle cities of Bukhara, Tashkent and Namangan regions, and will support social and economic development of the regions.  

Kazakhstan and PetroChina International Company signed a five-year contract to double Kazakhstan’s natural gas exports to China to 10bn cubic metres per year. Kazakhstan hopes to earn US$2bn a year from the exports. Kazakhstan estimates country’s total natural gas exports in 2018 will be 15bn cm.

Following midterm review of its strategy for 2014-2020, EU plans to allocate one billion euro (US$1.14 billion) to Central Asian states “for development cooperation… with a stronger focus on growth, investment, private sector development and job creation.’’ EU is reinforcing its role in Central Asia by making its approach pragmatic, creating tangible results for local economies to make itself competitive in rivalry with players like China. 

European Bank for Reconstruction and Development (EBRD) observed that while Uzbekistan’s reforms lay the ground for solid growth in years to come, price and exchange rate liberalisation and reduction of subsidies has led to adjustment of relative prices and double-digit inflation. EBRD expects growth to slow to 5% in 2018 and 4.5% in 2019 from 5.3% in 2017.

Exact growth figures for Turkmenistan are extremely hard to ascertain due to  its unreliable official data. Latest figure for GDP growth is 6.2% in 2018 and 5.6% in 2019, down from 6.5% in 2017. 

Uzbekistan attracted US$2.3- billion financing for construction of a plant for production of synthetic fuel using gas-to-liquids (GTL) technology. Total cost of project is US$3.6 billion, of which China will allocate over US$1 billion, South Korea - US$600 million, remaining nine lenders - about US$700 million in total, etc. Plant will be commissioned in 2020 and provide annual import substitution of petroleum products of up to 1.5 million tons worth over US$1 billion.

 

January 21, 2019

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About the Author

Ambassador Ashok Sajjanhar

Former Ambassador of India to Kazakhstan, Sweden and Latvia; President, Institute of Global Studies and Distinguished Fellow, Ananta Centre

Ambassador Ashok Sajjanhar belongs to the Indian Foreign Service and has acquitted his responsibilities in the diplomatic service for 34 years. He was Ambassador of India to Kazakhstan, Sweden and Latvia and has worked in senior diplomatic positions in Indian Embassies/Missions in Washington DC, Brussels, Moscow, Geneva, Tehran, Dhaka and Bangkok and also at Headquarters in India. He negotiated for India in the Uruguay Round of Multilateral Trade Negotiations and in negotiations for India-EU, India-ASEAN and India-Thailand Free Trade Agreements.

He contributed significantly to strengthening strategic ties and promoting cultural cooperation between India and USA, EU, Russia and other countries.Ambassador Sajjanhar worked as head of National Foundation for Communal Harmony to promote amity and understanding between different religions, faiths and beliefs. Ambassador Sajjanhar has been decorated by Governments of Kazakhstan and Latvia with their National Awards and by Universal Peace Federation with Title of ''Ambassador of Peace.'' Currently Ambassador Sajjanhar is President of Institute of Global Studies, New Delhi. He writes, travels and speaks extensively on issues relating to international relations, foreign policy and themes of contemporary relevance and significance. He appears widely on TV panel discussions. Ambassador Sajjanhar is interested in reading, music and travelling. His wife Madhu is an economist and an educationist. They have a son and a daughter both of who are accomplished singers. Their son passed out of Yale University and their daughter is pursuing her PhD at University of Minnesota.