If a nation does not know its history, if the country loses its history, then its citizens have nowhere to go.
Mirzhakyp Dulatuly

Integration of Central-Asian countries into the global economy

Zaure Chulanova, Ph.D. Deputy Director of the Institute for World Economy and Politics under the First Kazakhstan President Foundation INTEGRATION OF CENTRAL-ASIAN COUNTRIES INTO THE GLOBAL ECONO

Zaure  Chulanova, Ph.D.

Deputy Director of the Institute

for World Economy and Politics

under the First Kazakhstan President Foundation


Among the basic tendencies of world economic development two interconnected processes are risen above - globalization and regional integration. Under the conditions of increasing of globalization of political, economic and social processes there does not exist one country that can fence off from the contemporary world and trans-border processes. Globalization, as the historical process, penetrating politics, economy, social life, culture, ecology, national security and other spheres of public life strengthens the world economic system. The countries with open economy, having liberal national regimes of trade and flows of capital integrated into the world economy, have the stably high rates of economic growth. Access to investment, new technologies, knowledge, goods, services markets, interaction with transnational companies exert the positive influence on their economies. However, these goods are not accessible for all, they are distributed unevenly over regions and countries, and they are acquired in the most bitter struggle on the world goods and services markets, in which to keep balance is not on forces for each state. Especially vulnerable are the countries with the deformed economy, which do not have the possibility to sensibly estimate the arising world situation and therefore they are not capable to independently resisting negative consequences of globalization. In the economic plan they are not able to exist solitary, but their further prosperity depends of participation in the integrational process.

Under the contemporary conditions the regional cooperation of states became the key trend of the world development independently of the level of their social and economic development. The international experience of the survival of the economically insufficient countries shows that integration into the world economic system, which makes possible to realize effectively external factors of development, is possible on the basis of regional association of countries in different kind of interstate unions.

The process of interstate regional economic collaboration in order to form the common market space with different intensity was extended on the planet continents. At present the integration in frameworks of economies of several countries or region determines situation in the world. The most real and practical processes of regional integration continue in Western Europe (European Union), North America (NAFTA), South-Eastern Asia (ASEAN). Actively are developed commercial and cooperative relations in the Pacific region. Economic interdependence creates prerequisites for the political cooperation between the nearby states, thus, preventing the possibility of military conflicts appearance.

Creation of regional associations, forming of the united economic space is a prolonged and complex process. Level and degree of specialization and division of labor, the boundaries unity and geographical location are prerequisites, which accelerate integration. The influence of these factors is manifested most significantly on the Asian continent, where more than half of the planet’s population lives and one fourth of the world GDP is produced. The special feature of Asia is its “large geography” on account of the fact that the countries located in its different parts are considerably removed from each other. This is naturally reflected in their political and economic interests. The continent’s variety is manifested at religious, ethnic and cultural features of Asian countries. In some regions of Asia distrust and high sociopolitical tension remain as the consequences of protracted historical conflicts.

Attempting to reserve more advantageous positions on the international arena, Asian countries increase the economies, competing for political and economic influence in the region, for markets. Using different models of social and economic development each country it searches for its special niche in the global economic system. Strengthening competition aggravated many interstate, ethno-confessional, and as well social and economic problems.

Asian continent in the totality possesses rich natural resources, has significant potential for trade, economy, transport and power engineering and other spheres of  development and therefore it represents traditionally the sphere of geopolitical interests of the great powers. But, as shows the history of the world economy, the interlacing of such interests fraught with unpredictable consequences. Presence of diverse factors is, naturally, reflected in interstate relations and interaction of countries, which are constructed taking into account the regional, national, economic and social specific character of each of them.

At present as the concrete form of interaction of developing countries against negative external factors speak the Association of Southeastern Asian Nations (ASEAN), playing important role not only in development of the retarded countries, but also in creation of more attractive image of region, in particular, for positioning the investments. However, as a whole the real and deep integrated relations between the Asian countries are developed at slow rates because of differences in their social and economic development level, which moreover significantly lag behind the leaders of the world economy. Possessing the rich natural and economic potential, many countries cannot realize their competitive advantages.

According to the World Bank’s estimation not one state of Asian continent still reached even level of countries with average high income. In East Asia even such comparatively economically satisfactory countries as China and Thailand, in South Asia - Butane, the Maldives, Sri Lanka are referred to the group of countries with  average low income. However, the remaining states of these regions by national economy’s effectiveness are equated to countries with the low income. It is possible to mark among many social and economic problems of these countries: such as increase in inequality, descending level of population’s education, increased dependence of natural cataclysms and lack of preparation to resist religious extremism, terrorism and drug-traffic.

The dynamics of development of Asian continent’s countries is uneven. By the growth rates in each historical interval of time, the leadership passed from some countries to others. After the Second World War economy of Japan, which became in the world community’s eyes the personification of Asia, reached of acceleration rates. At present acknowledged leaders are: in East Asia - China, in South - India, presented as generators not only of regional, but also of world development. Foreign policy of these countries provides smooth entry in the world economic processes through the integration.

The Central Asia today is the object of rapt attention as well of regional and as well geographically distant from it geopolitical forces. Region is on the new development stage and becomes the epicentre of moving and promising possibilities of economic integration on regional and global scale. The countries of Central Asia during recent two decades are in transition state, passing the complex way of political, social and economic transformation connected with the social-economic structure’s modification, that radically changed the possibility of use of external factors of development. More than 70 years Central Asia constituted the part of the Soviet Union territory, inside which the interaction of the republics with each other was accomplished. International trade of countries, entering the socialist block was achieved through COMECON (Council for Mutual Economic Assistance), first in the history regional integrated union. The disintegration of COMECON, and then in 1991 of the USSR, led to the destruction of there united economic space and management, which united socialist countries. Simultaneously disappeared administrative channels, by which world trade was achieved. Here it should be noted that socialist system ended its existence in the period, when in the world economy integration process vice versa gathered force.

As result of the USSR’s disintegration was appearance on the Central Asia’s map of five new sovereign states. Transition from frames of the common economic space with planning system to the market economy where all external economic interrelations depend on action of market mechanisms and international rules accompanied by destruction of existed industrial and trading communications, has led to economic chaos. Euphoria from political and economic independence acquiring in these countries was replaced by problems of survival, conservation of statehood in the globalized world, quest of their own place in the world economic system.

In condition of deep crisis Central Asian countries have started to realize the complicated transition process from disintegration to reintegration with the world market system. Construction of the economy based on action of the system of market’s institutions and mechanisms, has shown, that restoration and modernization of industries up to a world level it is possible after carrying out of economic reforms, liberalization of foreign trade and attraction of the foreign capital. There was a question on the further interrelations between former Soviet republics, but already as the autarkic independent states. By this time Kazakhstan acted with the initiative to deal conjointly and help each other. With acceptance of the Almaty’s declaration on December, 21st, 1991 on the post-soviet space the Commonwealth of Independent States (CIS) was created with 12 countries as participants. Recent years the CIS is characterized by the steady growth, which made in 2005 in average 7%, and in 2006 – 7.5%, what is higher than the world average level. In 2006 the common GDP of Commonwealth countries reached USD 1123.8 millions, population at the end of year is evaluated as 280 millions, what completely corresponds to the average market parameters of functioning international unions. However, in spite of this factor and the fact that Commonwealth’s countries have the long-standing history of joint co-existence, are tightly connected geographically, culturally and ethnically, and also the commonality of people’s mentalities the potential possibilities of harmonious entry into the world economic system were not realized. The process of regional interaction and rapprochement proved to be more complex than it was expected. In many respects this is connected with the significant differences in the internal characteristics of the social and economic growth of each country, nature and dynamics of transition to the market economic system, considerable disagreements in the national legislations.

The preservable deformation of production processes, in particular, for example, strengthening the raw directivity of industry, absence of united policy in the trade sphere caused the reorientation of number of states of Commonwealth to distant foreign countries. The developing centrifugal economic and political tendencies, which were expressed in occurred “colored revolutions”, not solved territorial claims are the serious threat for retaining the economic space of the CIS. All these factors complicate the processes of political and economic interaction and do not exclude the dismantling of not got strongly structure of collaboration, about what the foreign experts speak with confidence.

Meanwhile  international experts examine and discuss the intermediate-term and long-term versions of the CIS development, states of the Commonwealth, being under  action of different centers of attraction, they realize the accumulated potential for the joint activity through political alliances and the economic groups of different kind, in particular, such as United Economic Space (EEP), the Association of Georgia, Ukraine, Azerbaijan, Moldova (GUAM), Eurasian Economic Community (EvrAzES) and others. Those associations considerably differ by participants’ composition, the economy’s scales, and also in political, social and economic aspects. However, in spite of existing differences, should be noted a certain uniformity of problems, inherent for all associations. Here should be carried, in particular, the fact that all of them in prospect have to do the sufficiently serious and complex work for bringing to the united denominator of the set of components of the common market functioning.

At present as most influential, integrated and promising model of economic association on the post-Soviet space protrudes EvrAzES, which arose in April 2001. Members of association represent two European countries – Belarus and Russia and four Asian countries - Kazakhstan, Kyrgyzstan, Tadzhikistan and Uzbekistan. In the totality the association possesses the rich natural, human and economic potential. Within the EvrAzES’ frameworks three fourths of population of the CIS are united, which generates almost 80% of volume the GDP. As interstate organization it is registered in the United Nations, which confirms its international-legal status. At present the process of activating the matched actions, directed toward reaching the real economic integration, the guarantee of dynamic development of the participating countries through the effective use of their economic potentials in the interests of the living standard of their peoples growth, continue along the line of association. The last seven years in the Commonwealth countries, after the prolonged decrease in the production, continues the process of the social and economic situation stabilization, the scales of production increase. Total volume the GDP in 2006 in comparison with 2004 grew by 69.7%. Originally into EvrAzES entered the countries with different level of development and degree of the market reformation of economy, by what essential differences in scale and capacity of the domestic markets for participating countries are explained. The objective leader of the block is Russia, with the largest territory, where lives 72.3% of population, that produced 87.8% of the total volume the GDP of association in 2006. After Russia with the significant detachment follows Kazakhstan with 7,4% of population and the volume of the GDP – 6.9%, then Belarus' with respectively 5.0% and 3.3%, Uzbekistan – 9.8 and 1.5%. Kyrgyzstan and Tadzhikistan have the smallest market shares, which in the totality constitute 5.5% and 0.4%. Among the EvrAzES countries the Russian economy is not only the largest, but also is most effective, considerably anticipated by the productivity of labor level others partners of integration. The volumes of economies were reflected in the production of the GDP per capita, which comprised in Russia - 6873 USD, Kazakhstan - 5045 USD, Belarus - 3730 USD, Kyrgyzstan - 542 USD, Uzbekistan - 522 USD, Tadzhikistan - 402 USD.

In spite of positive increase the GDP, rates of the postcrisis economic and fixed capital redevelopment considerably differ. The volumes of investments do not compensate the occurred drop and are insufficient for the modernization of production capacities. In many respects this is connected with the low level of the domestic savings in view of low personal income, low wages, insufficient profitability, small volume flow of money of many enterprises. For the break of the prevailing situation, realization of the necessary changes the countries are required the significant inflow of the foreign capital for financing the investment needs. In 2006 the total volume of investments as a whole by EvrAzES was almost 200 billion USD. The greatest volume is arrived on Russia – USD 164.94 billion, then goes Kazakhstan with USD 22.29 billion, Belarus – USD 8.95 billion. Extremely low investment activity is in Kyrgyzstan and Tadzhikistan - respectively USD 0.36 and 0.30 billion, what is completely insufficient for the renovation of the fixed capital, the deterioration coefficient of which is great.

For today investment as the basic channel of the interstate economic collaboration within the framework of Commonwealth is developed insufficiently and depends on investment opportunities and investment attractiveness of the country – partner for integration. Thus, in 2004 from the total volume of investments of Russia into the economy of the CIS countries to the EvrAzES countries was directed 71%, including into Belarus – 39.3%, Uzbekistan – 19.4%, Kazakhstan - 11.8%, and into Tadzhikistan and Kyrgyzstan respectively 0.4 and 0.1%. Kazakhstan is investmently attractive. As basic investors appear the distant foreign countries, whose share in the total volume composed 97.5% in 2004. From the CIS countries entered USD 212.6 mln, including USD 206.7 mln from the EvrAzES countries. The share of Russia is considerable, which put in 2004 in the republic USD 200.6 mln, what composed 97% of the total sum of investments of the EvrAzES countries.

At present EvrAzES solves effectively commercial and economic problems. However, in the territory of participating countries disintegration occurs, the dynamics of the rates of commodity turnover, export and import is strengthened not in the direction of countries of the Common wealth. The dynamics of export from Belarus, Kazakhstan, and Russia is more intensive to distant foreign countries, whereas the commercial connections of Kyrgyzstan and Tadzhikistan in general are developed at the domestic markets of the CIS. In 2005 Kazakhstan exported production into 16 countries of the world. As its basic trading partner appear countries of Europe, with the share 61.4% of Kazakhstan’s export, including to the countries of the European Union - 39.5%. Under the effect of the World Market the export of the countries of EevrAzES in general is composed by the production of resources extracting branches - fuel-energy and mineral-ore. Thus, the economies of Russia and Kazakhstan in recent years are developed because of the high world demand for the oil and the mineral resources. The volume of the goods produced and services reached shows that the existing strategic potential in Eurasian group is not still realized in practice.

In spite of the sufficiently high scientific, technical and intellectual potential, the EvrAzES countries have comparatively low competitive ability at the world markets. In many respects this is connected with the fact that the production growth ensure by previously created production capacities, which work in general for the domestic market, where the level of competition is not adequate to world conditions. The level of technological development prevailing in each country determines the value of the gross added value, embedded into the production. The share of gross added value in industry in Belarus, Kazakhstan, and Russia in 2004 made about 34.2% to 39.4% that corresponds to the indices, which were established in the middle income countries, but it is considerably lower than in the high income countries. For example, in developing China a share of gross added value in industry in 2003 composed 52.3%, and in 2004 – 50.8%. A share of the gross added value in agriculture of the EvrAzES countries is less than in the industry and there are more significant amplitude of fluctuations by countries from 7.3% in Kazakhstan to 38.7% in Kyrgyzstan.

At present the EvrAzES countries do not note essential achievements in the sphere of technical and technological innovations, and therefore they have the insufficiently attractive processing sector. An increase in the commodity turnover occurs due to the anticipating increase in the export of extractive branches production in comparison with processed branches, about what a comparatively low share of the gross added value placed in them, testifies.

Concerning the EvrAzES countries it should be noted that until today here the share of highly technological export is insignificant, that comprised in 2003 3.6% of the manufacture export, in particular, in Kazakhstan – 8.7%, Russia – 18.9%, Kyrgyzstan – 1.9%. It is obvious that for the entry to the world market with the science-intensive technologies the EvrAzES countries must create branches with the complete production process from the output of raw materials and ending with the production claimed in the world. However, in spite of many problems, which require their solution, unambiguously it is possible to establish the fact that the economic block acting today is represented as the taken place integrated structure with all its pluses and minuses, and the main thing – it possess the enormous potential for organizing the productions, capable of being entered into the new niches of the international economy.

The integration of the post-soviet space countries is predetermined by objective circumstances, realization of the generality of interests of economic development, impossibility of isolated existence and need for integration process for the competition on the world market. This is especially important, since these countries have the centuries-old history of collaboration, including being in the composition of the USSR, similar infrastructure, overall boundaries, coinciding ways of economic development.

As the most important potential of the EvrAzES as an integrated association should be considered the process of its successful functioning in the side of fulfillment of the originally stated goal on shaping of the Customs union and united economic space. At present the top priority within the framework of EvrAzES is the completion of the united customs union creation, which assumes first of all united customs tariffs, that derives commercial and economic collaboration to the new level and not only within the EvrAzES frameworks. The discussion deals with the entrance in WTO as the united customs territory.

In prospects the following stage of integration at the state level determined creation of the united economic space, which can be achieved only with harmonization of entire economic regulation and, as complete, - introduction of the united national currency.

On the Eurasian geopolitical space in recent years the Shanghai Cooperation Organization (SCO) was formed as the fundamentally new system of sub-regional association. For the first time SCO members began to collaborate at the beginning of the 1990's years attempting to strengthen stability in Central Asia after the new post-Soviet republics formation which had not the experience of protection their boundaries. In the zone, subjected to global risks, the retention of sovereignty and territorial integrity was important task. In other words, the basis of association were especially political motives in the tendency to solve together security issues, in particular, combating the terrorism, extremism, separatism and drug trafficking to  the Central Asia territory. But for the transformation of Central-Asian region into the zone of stable development was necessary the more universal security system, built on the principles of confidence, collaborations and friendly relations. In 1996 the leaders of Kazakhstan, China, Kyrgyzstan, Russia and Tadzhikistan signed Shanghai agreement concerning strengthening of confidence measures in military affairs in the boundaries region, assumed beginning to the new regional unit “Shanghai five”. Membership of China with its powerful economic system in the composition of this block made it possible not only to regulate and to coordinate near-boundary questions between countries, but also marked the beginning of collaboration in the sphere of commercial and economic relations.

On June 7, 2002 in Saint-Petersburg during the second meeting of heads of participating governments of SHOS as result of discussion questions of forming of SHOS mechanisms were signed three documents - Charter of the Shanghai Cooperation Organization, the Agreement between the member states of the Shanghai organization of collaboration about the regional anti-terrorist structure and the Declaration of states-members’ heads of the Shanghai organization on collaborations, that had placed the legal basis of association’s development and which appeared as the beginning of the fundamentally new system of sub-regional collaboration forming through the close cooperation of six states. Within the short period from the moment of creation the SCO became the valuable and efficient organ for solution of political issues of Eurasian region. Already in 2004 it was noted at the session of the Heads of Government of states-members of the Shanghai organization of collaboration (Bishkek), that the institutional building of SCO is completed. The secretariat of organization, regional anti-terrorist structure and its executive committee began their work, interstate councils at the different levels, conferences of the leaders of ministries and departments regularly are conducted.

At present this is one of the largest international organizations of planet, which unites the peoples of different civilizations. The territory of participating countries by integration is located on the Eurasian continent, where live almost fourth of population of the terrestial globe. In 2006 the joint volume the GDP of these states composed 8.3% of the total world volume. The GDP growth rates of the countries of association anticipate the world-wide rates increase. The important partner of integration is China, in territory of which live 86.7% of population and that produces 72.8% of volume the GDP of SCO countries. The Russia’s share is respectively 10.2% and 24.7%, while to the countries of Central Asia – 3.1% and 2.5%. Such significant differences in number of human resources and scales of economies does not mean that SCO will be compulsory to express position of one some country, which plays the leading role in the organization. SHOS is based on principles of equality and consensus.

Emphasizing the importance of collaboration within the framework of organization fighting separatism and terrorism, SCO sees the central objective of its activity in participating countries helping each other improve the life of their peoples. Member states of SCO are convinced that the success of fight with the contemporary dangers in many respects depends on the solution of social and economic problems, such as the liquidation of poverty, unemployment, illiteracy, discrimination according to the racial, ethnic and religious signs. In the course of time this approach expanded series of questions, and security issues began to be solved on the base of economic collaboration, after including them-self in different spheres of collaboration: politics, economy, national security, culture etc. In the program of the many-sided commercial and economic collaboration of states - SCO members, as the basic priorities are named power engineering, transport, telecommunications, agriculture, tourism, credit and banking, water conservancy and nature-conservation systems, assistance to the straight contacts of subjects of the small and medium-sized business. The implementation of this program, which includes more than 120 projects in the different branches, will convert SCO into the powerful center of attraction in Asia not only in the military-political sphere, but also in the economic sphere.

For intensification of attitudes of member nations in the commercial and economic sphere within the SCO frameworks is created the special development fund of this organization, which contributes to the investment activity of participating countries. SCO project became complex. After solving the basic problems of organizational formation, have  enlarging size and increasing the political weight of organization, states SHOS members give the special attention to deepening of effective collaboration in the priority directions of their activity, for the purpose to convert the Eurasia region into the safety zone, one of the reliable motors of regional and world economy. In the social and economic sphere basic accent is done to the growth of efforts of participating countries for the economic reconstruction of region by the way:

- encouragement of effective regional collaboration in the commercial and economic spheres, nature-conservation, culture, science and technical development, education, energy, transport, credit and financial and others, which are of common interest;

- assistance to comprehensive and balanced economic growth, to social and cultural development in the region by means of combined actions on the basis of equal partnership for purposes of a steady increase in living standard and quality of life of population in states-members;

- coordination of approaches to integration into the world economy.

Most important question is expansion of SCO. To this organization manifest interest India, Iran, Afghanistan, Pakistan, Mongolia, what testifies not only about the agreement of their political and economic interests with purposes and tasks, which stand before the organization, but also the prospect for interaction within the frameworks of interstate regional structure. Participation in SCO creates favorable institutional basis for interaction with Russia, Kazakhstan, Uzbekistan and other countries of central Asia. SHOS, following the principle of openness, is ready to establish contacts with the international organizations and states, independent of their geographical location. The decisive factor of the association of states in SCO are existing external threats and challenges of national security of region. On the SCO summit in Astana on July 5, 2005 after examination of official appeals to India, Pakistan and Iran was given the status of observers at the organization. Earlier this status Mongolia obtained.

At the meeting in Moscow, which occurred at the end 2005, India and Pakistan stated about their desire to become full-fledged members of SCO. Analogous intentions expressed Iran and Mongolia. In the case of joining of these countries to the organization, SCO will be of interests more than 40% humanity, and joint share in the total volume of the world GDP will grow to 11%. It is natural that all this will introduce positive correctives over the long term for SCO development as a whole. Stably high economic growth of China, Russia, India, Kazakhstan and other countries of organization will exert influence on change in the geopolitical position in the world and strategies of productive forces ratio in Asia. If we follow geographical logic, then is not excluded the possibility of subsequent connection and other countries of Eurasia taking into account their agreement to follow principles and obligations, placed as basis of SCO.