Among the countries of the former Soviet Union, the Central Asian states (Tajikistan, Uzbekistan, Kazakhstan, Kyrgyzstan and Turkmenistan) belong to the group most significant perspective of integration in into the global economy. Therefore, cooperation with Central Asia has been repeatedly growing.Kazakhstan and Turkmenistan are relatively rich oil and gas exporters, the Kyrgyz Republic and Tajikistan are poor energy importers, and Uzbekistan is a more diversified but still rather poor economy, however are making chances toward to new economic opportunities. More than 80% of Turkmen, about two-thirds of Kazakh and one-third of Uzbek exports consist of oil, gas and other mineral products. Kazakhstan also exports metals, Uzbekistan cotton and metals.

Growth drivers in Central Asian have been recovering energy and other resource prices and/or export volumes, generous private and public investment expenditures, and substantial remittances. Fixed exchange rates (to the U.S. dollar) tend to be opted for by the oil and gas countries, floating currencies are preferred by the others.

In Central and Eastern Europe, the banking sectors’ ownership structure is dominated by – mostly-Western European – FDI. In Central Asia, in contrast, either state-owned banks (SOBs) are in control (Turkmenistan and Uzbekistan)10 or domestically owned credit institutions hold sway (Kazakhstan and Tajikistan)11. Only in the Kyrgyz Republic is a large share (not quite half) of credit institutions’ assets owned by foreigners – mostly Kazakh business groups (see chart 4). Regional banking sectors have remained rather weak financially; in Turkmenia, Uzbekistan, Tajikistan and the Kyrgyz Republic (to a smaller degree), banks have continued to fulfill quasi-fiscal functions.

Development aid can affect foreign direct investment in recipient countries in various ways. According to Harms and Lutz, appropriately targeted aid can have an ‘infrastructure effect’. Improved domestic infrastructure may lure foreign investors. Inflowing development aid may also raise domestic firms’ marginal productivity of capital, which in turn helps to attract FDI (Foreign direct investment).

For instance,both China and Japan would like to pursue greater roles and interests. Largely initiated by China, the Shanghai Cooperation Organization has enhanced China’s influence in Central Asia. This has caused concern for Japan, which then sought to expand its presence in the region. Through meetings and dialogues with Central Asian leaders, and by providing aid and loans to states in the region, leaders of China and Japan have been trying to obtain contracts for extracting oil, natural gas, rare metals, uranium and other minerals from Central Asian states,

In the near future, demand for FDI in Central Asia will increase because of greater openness, trade expansion, financial integration, privatization, and economic growth. Since all CA5 economies are landlocked and depend on neighbors’ infrastructure to gain access to world trade routes, it seems rational to continue tailoring aid projects to levelling and synchronizing counties’ business environments.

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References

Arazmuradov, A 2015, ‘Can Development Aid Help Promote Foreign Direct Investment? Evidence from Central Asia’, Economic Affairs (Institute Of Economic Affairs), 35, 1, pp. 123-136, EconLit with Full Text, EBSCOhost, viewed 15 June 2016.

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Chung, C 2015, ‘China and Japan in Central Asia’, China: An International Journal, 13, 2, pp. 123-134, EconLit with Full Text, EBSCOhost, viewed 15 June 2016.

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Barisitz, S 2014, ‘Macrofinancial Developments and Systemic Change in CIS Central Asia from 2009 to 2014’, Focus On European Economic Integration, pp. 48-73, EconLit with Full Text, EBSCOhost, viewed 15 June 2016.

References

Wang, W 2014, ‘The Effects of Regional Integration in Central Asia’, Emerging Markets Finance And Trade, 50, pp. 219-232, EconLit with Full Text, EBSCOhost, viewed 15 June 2016.

References

Libman, A, &Vinokurov, E 2011, ‘Is It Really Different? Patterns of Regionalisation in Post-Soviet Central Asia’, Post-Communist Economies, vol. 23, no. 4, pp. 469-492. Available from: http://www.tandfonline.com/loi/cpce20. [15 June 2016].