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Economy

Ex-Soviet states need, fear Russian trade ties

Politics is rarely far from business in Central Asia, and Russia's trade and investment in the region is no exception.

     As reflected in guarded official reactions, Russia's lightning seizure and annexation of Crimea has sent jitters through the region's five former Soviet republics which, like Ukraine, host Russian military bases and are home to enclaves of Russian speakers.

     Russia has long been a welcome source of capital and a counterweight to Chinese and Western interests. It is also a healthy market for Central Asian products, including gas, cotton and wheat -- and for the region's laborers.

     After the developments in Crimea, however, Central Asian governments are asking whether Russian economic ties are just good business or the tip of the spear.

     To be sure, concern about ulterior motives attached to Russian business interests precedes recent events in Ukraine. Take Kazakhstan, which shares a 6,800km border with Russia and is the largest economy in Central Asia. Its government has been strongly in favor of economic integration with Russia since the two countries, along with Belarus, formed a customs union in 2007. Kazakhstan has so far rejected Russian efforts to build on the grouping to create a Eurasian parliament, yet trade between the two countries has continued to expand quickly. 

More to lose

Generally, trade with Russia is more important to Central Asian states than it is to Moscow. Russian state gas producer Gazprom now buys far less gas than it used to from Turkmenistan and Uzbekistan. 

     In much of Central Asia, remittances represent the key economic link with Russia. Money sent home by workers in Russia accounts for nearly half of the gross domestic product of Tajikistan, the poorest of the former Soviet republics. Because the currency wired back is rubles, declines in the currency, including the recent steep falls around the Crimean crisis, deal a big blow to Central Asian economies.

     Central Asia also has to worry about the overall Russian economy. A slowdown could affect Russian spending in the region, according to Lilit Gevorgyan, a senior economist at information provider IHS Global Insight who specializes in financial risk in Central Asia.

     Turmoil in Ukraine could divert Russian investment away from Central Asia toward Russia's domestic market to help meet Kremlin promises to invest in infrastructure and energy production to create jobs at home.

Playing the field

Unless the geopolitics of the region change dramatically, annexation of ethnic Russian enclaves is not a serious proposition in Central Asia.

     Russian culture runs deep among many groups across Central Asia, especially in the bigger cities where the Russian language is still predominant. But the number of ethnic Russians is dwindling because of a low birth rate and emigration. Central Asia is also a region where identity is deeply rooted in tribe and village.

     Under Soviet rule, many Central Asians bristled at Moscow's power over their lives. Kremlin strategists are aware that any physical incursion by Russia risks igniting a restive, predominantly Muslim region that is already a nationalist tinderbox.

     In Central Asia, Russian economic influence has been undergoing a slow but steady decline since at least the global financial crisis in 2008. In its place has come increased investment from China in huge infrastructure projects and pipelines crisscrossing all five republics and in mining ventures in Kazakhstan and Kyrgyzstan. Chinese aid has also poured into Tajikistan.

     Beijing has also urged a revival of Central Asia's ancient Silk Road trade with China's Xinjiang region. China hopes this can provide another path toward prosperity for Xinjiang, nominally an autonomous area for the Uighur minority, a Turkic Muslim group.

     Central Asian governments have embraced what is being called a "multivector" approach to foreign policy -- by and large welcoming investment and negotiating the interests of everyone, including Russia, China, Europe and the U.S. It is a strategy meant to neutralize the primacy of any one outside power.

     Yet Russia's commercial investment in and trade with Central Asia, even if decreasing overall in business terms, still come with a political agenda that China's investment does not, say business executives.

     "Russia's economic influence in Central Asia has been in controlled decline since the economic crisis, leaving a void that China has filled quickly and impressively with fewer strings than Moscow used to attach," said a senior oil executive with extensive business dealings in Central Asia. "But make no mistake, when it comes to political and defense influence, Russia reigns supreme in Central Asia.

     "The current batch of Central Asian leaders were all schooled in the Soviet Union and these instincts remain strong," he continued. "The recent events in Ukraine will only serve to remind them that in Russia's near abroad, they challenge the Kremlin at their peril."

Ilan Greenberg, previously based in Kazakhstan, is a professor in the Globalization and International Affairs Program at Bard College.

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