In his April 2007 visit to Bishkek, Kazakhstan’s President Nursultan Nazarbayev announced his desire to create a Union of Central Asian states. Projects of regional integration are usually ill-received among Central-Asian elites, who suspect the country initiating them of seeking to arrogate the role of a new “big brother”. Moreover, the proposal was announced in a rather unilateral fashion, earning heavy criticism from Uzbek and Tajik authorities. Kyrgyzstan’s reaction was more nuanced, while Turkmenistan did not comment at all. The proposal reveals Kazakhstan’s ambitions and economic dynamism, which has enabled it to present itself in the role of regional leader, regardless of ambivalent attitudes in other capitals.

BACKGROUND: The Kazakhstan-Kyrgyzstan economic forum, which took place in Bishkek on July 11 2007, reinforced Astana’s economic presence in the economy of its small neighbour. In 2006, Kazakhstan’s direct investments in the Kyrgyz economy amounted to nearly US$150 million, three times the figure in 2005. Trade between the two countries increased by 25 percent between 2005 and 2006, exceeding US$360 million. Kyrgyzstan is home to around 400 Kazakh-Kyrgyz joint ventures. The principal agreement signed at the summit foresees the creation of a Kazakh-Kyrgyz Investment Fund with a capital of US$120 million (100 million to be provided by Astana, 20 by Bishkek), the function of which is to revive Kyrgyzstan’s economy. The fund has been set up to finance the construction of a highway connecting Almaty to Lake Issyk-Kul, a popular tourist destination for the Kazakh middle class, and the joint construction of a smelting plant due for completion at the end of 2008. It could also be used to support the candidacy of the Samruk Holding to the international consortium overseeing the construction of the hydroelectric stations in Kambarata.

After years of regular decreases, Uzbek-Kazakh trade levels are starting to rise once more thanks to Kazakhstan’s dynamism. According to Astana, the trade volume between the two countries reached US$703 million in 2006, nearly triple the 2005 volume. Joint ventures between the two countries are being furthered: in 2006, these numbered 48 in Uzbekistan, as well as 96 enterprises with Kazakh financial participation, and 24 Kazakh companies had representative offices. Kazakhstan, for its part, is home to more than 715 enterprises with Uzbek financial participation. This trade development between two traditionally rivalrous states has recently been legally framed. On July 26, during Kazakh prime minister Karim Masimov’s visit to Tashkent, a “Strategy of economic cooperation” between the two countries was signed for the period 2007-2016, covering the domains of trade, investment, finance, transport, communications and cross-border cooperation.

Over the last several months, Astana and Ashgabat have also been seeking a rapprochement. On May 28-29, 2007, Turkmen President Gurbanguly Berdymuhammedov made an official visit to Astana, which was symbolically preceded by the re-opening of the Ashgabat-Almaty air route. The Turkmen president was there to negotiate massive imports of wheat and flour. Astana, for its part, offered to help Turkmenistan secure the foreign investments necessary to realize the Turkmen section of the new Russia-sponsored Caspian gas pipeline, an agreement on which was signed last May. The countries also reached agreement on consignments of raw uranium extracted from Turkmen deposits to be enriched in Kazakhstan, as well as on Kazakhstan’s utilization of Turkmen military firing ranges. Nazarbayev would also like to see KazMunayGaz involved in the Turkmen oil and gas sectors.

Finally, Kazakhstan confirmed its desire to establish itself in Tajikistan on the occasion of a visit by Nazarbaev to Dushanbe on September 13. At a joint economic forum, the countries announced the birth of a Kazakh-Tajik investment fund with a capital of 100 million dollars (80 million contributed by Kazakhstan, 20 million by Tajikistan), the function of which is to finance projects mainly in the production of electricity, and in agriculture and mining industries. Kazyna Funds also appears to have decided to finance the construction of small hydroelectric stations like the Nurobod station in the north of the country, and a private bank, Kazkommertsbank, also wants to establish itself in the country.

IMPLICATIONS : Kazakhstan represents 70% of the total GNP of the five Central Asian states. Its economic dynamism has made it into a model for all, even if the leaders of neighbouring countries do not officially acknowledge its supremacy. Astana is searching for new markets for its industries, banks, capital and commercial products. Already in Soviet times, Kazakhstan had a higher level of industrialization and played the role of “breadbasket” of Central Asia, but it is now keen to develop new sectors.

Thus, in the banking sector, the Kazakh authorities have followed the role of China, which for several years has offered the countries of Central Asia substantial financial aid, without which they could not invest in costly projects. The state fund Kazyna, along with the Eurasian Bank, which was jointly founded by Kazakhstan and Russia, are poised to spearhead Kazakh expansion in Central Asia. Astana is also awaiting the launching of a Sino-Kazakh fund with a capital of US$ one billion; Beijing only has to choose an operator from among the three potential candidates, the China Development Bank, the China Eximbank, and the CITIK corporation. A similar fund uniting Kazyna and Vneshekombank of Russia is currently under discussion. These investment funds are designed to provide backing to the countries of Central Asia for large projects in the metallurgy industry, in railway and electricity infrastructure, to date the region’s only cost-effective sectors.

Kazakhstan also wants to secure access to its neighbors’ natural resources. At the end of the 1990s, it was among the first to realize that the difficult issue of water management could only be resolved if consuming countries like Kazakhstan, Uzbekistan and Turkmenistan accepted to invest financially in the hydro-structures of Kyrgyzstan and Tajikistan. Thus, Astana and Moscow have agreed to collaborate on the construction of the Kyrgyz hydroelectric stations Kambarata 1 and 2, being jointly undertaken by RAO-UES, the Kazakh company KazKuat, and the Kyrgyz company Elektritcheskie stantsii. Bolstered by the success of KazMunayGaz, Kazakhstan also hopes to participate in developing the energy sectors of Uzbekistan and Turkmenistan, whether in the exploitation of deposits or by providing technological assistance: Astana has thus invested a part of the monies flowing from its petroleum bounty outside the country’s borders in order to secure itself a place in markets that promise to bear fruit.

CONCLUSIONS: The reasons for Kazakhstan’s growing participation in the economies of its Central Asian neighbors are not only economic, but also carry geopolitical importance. The Kazakh authorities are well aware that the inherent weakness of Kyrgyzstan and Tajikistan might be detrimental to their own success story. The current withdrawal of the Uzbek regime, caught in an isolationist spiral unconducive to development, leaves the way open for Kazakhstan to assume the regional leadership role. In addition, Astana does not want to leave Russia and China alone in their conquest of Central Asian markets, nor can it accept the idea that Moscow and Beijing play the role of intermediaries between Central Asia and the rest of the world. Refusing to be at the mercy of its large powerful neighbors, Astana is seeking to gain an equal footing in discussions with Russia and China, and to become an essential intermediary of the United States and the European Union in Central Asia.

AUTHOR’S BIO: Sébastien Peyrouse is a Senior Associate Fellow at the Central Asia-Caucasus Institute & Silk Road Studies Program, at Johns Hopkins University-SAIS, Washington D.C., and an Associate Fellow at the Institute for International and Strategic Relations (IRIS), Paris, France.