The structure of the economies of all five Central Asian countries is similar: they possess rich natural resources, the population is growing, the labor cost is low, but the quality of investment climate varies. Kazakhstan in Doing Business rating is in 36th place, -74 Uzbekistan, Kyrgyzstan — 77, Tajikistan — 123. Turkmenistan in the Doing Business rating is not because of lack of data.
According to BCG, the share of Central Asia in the global economy has tripled over the years 2000-2017. But the weight of the region on the economic map remains critically low — about 0.3% of global GDP. In value terms this is about $240 billion, which is comparable to Central America ($255 billion) and Finland ($254 billion) (EIU data).
According to the forecast of the Asian Bank, economic growth in Central Asia will amount to about 3.9% in 2018 and may accelerate in the future due to the recovery of prices for raw materials and support the growth of the region through ambitious projects in the Chinese and Indian economies, including the “One belt and one road”, in which China plans to develop marine and land transport corridors to Europe.
In Central Asia, home to about 70 million inhabitants. Capacity of domestic market consumption in this region amounted to about $150 billion in 2017.
Over the past ten years, private consumption in the countries of Central Asia grew on average by 3.4% per year — this corresponds to the level of Singapore or South Korea and was above the world average growth of 1.5%. Consumption per capita in Central Asia in 2017 are still low — $2107 — a, and comparable with North Africa ($2120) and Indonesia ($2230).
GDP per capita in Central Asia by the end of 2017 amounted to $3603. For comparison, BCG provides data for Thailand, which is home to 69 million people, a GDP per capita substantially higher and is $6600.
GDP and growing population
Kazakhstan is the largest economy in the region (64% of GDP). According to BCG, the real GDP of Kazakhstan in 2017 amounted to $103 billion (in 2005 prices), GDP per capita — $25 490: it is four times more than in Uzbekistan, seven times more than in Kyrgyzstan, and nine times more than in Tajikistan.
According to the UN, the human development index Kazakhstan occupied the 56th place among 188 countries above the world average level, but the average level of countries of Europe and Central Asia.
According to BCG, Kazakhstan can increase the volume of attracted FDI in non-extractive industry $32-52 billion In the three of leaders on investment opportunities in Central Asia — Uzbekistan ($7-13 billion) and Kyrgyzstan (us$1.3—2 billion).
A skilled workforce is one of the key factors for rapid economic development of Kazakhstan, according to BCG. Now it has a population of 18 million people, the annual growth in the last few years was 1.5%, and by 2030 the number could reach 20.3 million people. Relatively low wages provide a competitive advantage Kazakhstan on cost of personnel and noted in the BCG. According to the EIU, the average salary in the country is $516 per month: it is almost 50% less than in Chile, Romania and Croatia.
Kazakhstan has already become a major destination for foreign investments: in 2008 and 2017 the total volume of FDI in new projects in the country reached $82 billion, but they dominated in the raw materials sector (coal, oil and gas accounted for 54% of total FDI inflow in 10 years, the share of metals and minerals amounted to almost 10%).
After the 2008 crisis, Kazakhstan launched an ambitious program for the development of innovation and industrial production. According to the Kazakh government, in 2017 two-thirds of the increase (4%) were in non-primary sector.
As a neighboring country, Uzbekistan depends on the price of raw materials and the state of the economy major trading partners. In 2016, the Uzbek economy was struck by recession in Russia, which is the second largest trading partner of Tashkent, the economic slowdown in China and falling prices for the main articles of the country’s material exports — gas, copper and cotton. However young and growing population provides the largest internal market in the region (its population is 32,6 million, which is comparable to Malaysia or Morocco).
Unlike Kazakhstan and Uzbekistan, Kyrgyzstan has no significant oil and gas resources that could support economic growth. But in recent years, GDP grew at a rate of around 4% in real terms and reached in 2017, $4.2 billion (in constant 2005 prices), doubling compared to 2000. According to the world Bank, the Kyrgyz economy has become resilient to external shocks. The share of industry is estimated at 32% of GDP.
Real GDP of Tajikistan grew from $1.5 billion in 2000 to $4.4 billion in 2017. The experts at BCG expect high growth in 2018-2021 years due to state support. In 2017, Moody’s pointed to the weakness of some institutions in the economy and low foreign exchange reserves, however, “despite the serious stress for the banking system, the government and the Central Bank maintain relative economic stability.”
The three pillars of Central Asia
Priority sectors for investment in Central Asia BCG considers the processing of agricultural products, petrochemicals, and tourism. According to BCG, also neconventionale sectors of information technology, financial services, construction industry, mechanical engineering and chemical industry.
The legacy of the past
Investments in countries of Central Asia have historically been concentrated in the primary industries and accounted for about 59%. But in most countries of the region are large-scale reforms aimed at reducing the dependence of economies on oil and other commodity markets. For example, the government of Uzbekistan has been implementing measures to increase the openness of its economy to foreign investors and Kazakhstan made a bid to attract global investment through the creation of an international financial center “Astana”, while a similar project has stalled in Russia.
Chinese tourists are the priority
The proximity to China and Russia can afford to realize the tourism potential of Central Asian countries, consider in BCG.
According to the world tourism Council, the spending of Chinese tourists in the years 2015-2017 grew on average by 8.5% per year to $261 billion, and their number has reached 135 million people a year. Russian tourists have less to spend abroad, mainly due to the devaluation of the ruble, and on the map of mass tourism, Central Asia is not included, notes BCG.
The burden of risk
Investment in frontline countries, which include Central Asia, represent a greater risk compared to developed and developing markets, Forbes solidarity of the interviewed experts.
In Central Asia there are four key risks: political tensions, the dependence on neighboring economies, the volatility of prices for raw materials and security risks. Through the strategy the world’s major Central banks, the balance of power in the world economy began to change, but the outcome of the struggle for investment is difficult to predict, EIU analysts concluded.