Important motivating factors for their reform efforts included issues of geographic and economic proximity to Europe and the influence of the pre-Soviet era histories in those countries. In the Shadow of Russia builds upon the conceptual frameworks that include geography and policy choices about economic integration in an analysis of the reform efforts of Kazakhstan and Uzbekistan.
Blackmon's book addresses such central questions as: How and in what areas has a republic's previous level of integration with Soviet-era Russia influenced its present economic orientation? What are the contributing factors that explain the differences in how leaders ( of a similar regime type) developed economic reform policies? To answer these questions, the author utilizes information from both the economic and the political literature on post-communist transitions, as well from political speeches.
Important motivating factors for their reform efforts included issues of geographic and economic proximity to Europe and the influence of the pre-Soviet era histories in those countries. In the Shadow of Russia builds upon the conceptual frameworks that include geography and policy choices about economic integration in an analysis of the reform efforts of Kazakhstan and Uzbekistan.
Blackmon's book addresses such central questions as: How and in what areas has a republic's previous level of integration with Soviet-era Russia influenced its present economic orientation? What are the contributing factors that explain the differences in how leaders ( of a similar regime type) developed economic reform policies? To answer these questions, the author utilizes information from both the economic and the political literature on post-communist transitions, as well from political speeches.
In the Shadow of Russia: Reform in Kazakahstan and Uzbekistan
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Overview
Important motivating factors for their reform efforts included issues of geographic and economic proximity to Europe and the influence of the pre-Soviet era histories in those countries. In the Shadow of Russia builds upon the conceptual frameworks that include geography and policy choices about economic integration in an analysis of the reform efforts of Kazakhstan and Uzbekistan.
Blackmon's book addresses such central questions as: How and in what areas has a republic's previous level of integration with Soviet-era Russia influenced its present economic orientation? What are the contributing factors that explain the differences in how leaders ( of a similar regime type) developed economic reform policies? To answer these questions, the author utilizes information from both the economic and the political literature on post-communist transitions, as well from political speeches.
Product Details
| ISBN-13: | 9780870139864 |
|---|---|
| Publisher: | Michigan State University Press |
| Publication date: | 11/05/2010 |
| Series: | Eurasian Political Econ. & Public Policy |
| Pages: | 130 |
| Product dimensions: | 6.00(w) x 9.00(h) x 0.40(d) |
About the Author
Read an Excerpt
In the Shadow of Russia
Reform in Kazakhstan and UzbekistanBy Pamela Blackmon
Michigan State University Press
Copyright © 2011 Pamela BlackmonAll right reserved.
ISBN: 978-0-87013-986-4
Chapter One
Breaking Apart from Russia
The Soviet system was designed to benefit Russia, and Russia's relationships with the other Soviet republics were based on the resources that each could provide it. The republics had varying levels of economic integration with Russia, and thus differing constraints on the choices available to their leaders at independence. This chapter will examine how Kazakhstan's and Uzbekistan's integration with, and proximity to, Russia in geography, infrastructure, and disposition of natural resources has affected economic reform in each country. In part because they share a geographic border, Kazakhstan's economy was highly integrated with Russia's, an arrangement that limited Kazakhstan's ability to operate at the same economic level after independence. The economy of Uzbekistan, on the other hand, was less integrated with that of Russia, giving it greater economic freedom after independence. This relative freedom, added to President Karimov's decision to continue policies on cotton production that began during the Brezhnev era, is one factor in the Uzbek government's slower progress along the path of economic reform.
Economic Integration with Russia: Geography and Resources
KAZAKHSTAN
The most obvious geographic difference between Kazakhstan and Uzbekistan is that the former borders Russia, while the latter is located further south. Kazakhstan's proximity to Moscow explains why it was treated much more favorably than the other Soviet republics in areas such as investments in infrastructure. Kazakhstan received higher than average funding, which resulted in industrial development in metallurgy, machine building, and heavy and light industry (Brukoff 1995). In turn, Kazakhstan's electrical sector, coal production, and oil and gas pipeline systems were structured to support Russia. The following paragraphs provide a brief account of this asymmetrical relationship in the energy sector.
First, Kazakhstan did not have a unified electrical supply system during the Soviet era. Its electrical sector was divided into two main grids: in the north and the west, a grid that was connected to the Russian system, and in the south, a grid that was connected to the rest of Central Asia. Kazakhstan lacked independent control over these weakly connected electrical grids and suffered interruptions that were one cause of the drop in electrical production in Kazakhstan after the end of the Soviet system (see figure 1).
Declines in production were also the result of Kazakhstan's policies. In the initial stages of economic reform, a rise in energy prices resulted in decreases in domestic demand and declines in output (World Bank 1993a, 112–13). In addition, because of the country's unpaid debts to Russia, Moscow cut off power to Kazakhstan's northern factories soon after its independence (Olcott 1998, 100).
Second, Kazakhstan was the third largest coal producer in the Soviet Union, and about 40 percent of its production was exported to Russia (World Bank 1993a, 111). The multiple-track railway line built in the 1930s to transport coal to Russia indicated the importance of the Karaganda field, located in eastern Kazakhstan, as a supplier for Russian industry. The Karaganda field was crucial to the Soviet Union as the main supplier of coking coal for the metallurgical industries of the Urals.
After the end of the Soviet Union, Kazakhstan's production of coal dropped significantly, declining 39 percent from 1991 to 2001 (ISCCIS 2002, 51). The decrease was due to many factors, including restructuring of the sector, high tariff s for the use of Russian rail systems, and price increases resulting from decreased demand (World Bank 1993a, 113; IMF 1996, 6–7). Production of coking coal (coking is the process used to make coal suitable for the manufacture of steel) in particular declined steadily after independence, and from 1997 to 2000 all of its exports of coking coal went to Russia, as opposed to the Baltics and the other FSU (former Soviet Union) states (see figure 2) (IMF 2002, 95).
Kazakhstan's continued export of coking coal to Russia was in part the result of rail tariff s imposed by other republics and their lack of resources to pay for coking coal. But it is a stark example of an area of economic integration of these two republics that emerged from the Soviet era.
Finally, Kazakhstan did not have a unified oil and gas pipeline system during the Soviet era. The two main refineries are Pavlodar in the northeast and Shymkent in the southeast, while the main oil deposits are in west Kazakhstan, bordering the Caspian Sea. Kazakhstan's crude oil was exported to Russia for refining, while Kazakhstan's refineries were designed to refine crude from Siberia via the Omsk-Pavlodar-Shymkent pipeline (World Bank 1993a, 8). Kazakhstan has sizable reserves of crude oil, but lacks a connected pipeline and refinery system to refine and export it. Estimates made soon after independence placed Kazakhstan's recoverable oil reserves at 12 billion barrels, and the country ranked second in oil production among the FSU states (after Russia) (World Bank 1993a, 8). Recent estimates put Kazakhstan's proven and recoverable reserves much higher, at 30 billion barrels, and the Kashagan field alone is thought to have reserves of 13 billion barrels.
Russia was so well integrated with Kazakhstan because it wanted to control and take advantage of its natural resources. Their shared border made integration in these areas of infrastructure much easier to achieve. After the dissolution of the Soviet Union, the government of Kazakhstan decided that it could not operate within Russia's integrated system, and would have to engage the international community to increase international involvement in sectors formerly intertwined with the Russian economy. This decision is evident in steps taken to engage outside investors for oil pipeline structures and projects, as well as in the privatization of large enterprises in the power and gas sectors. Outside investors were needed for their expertise and for funding the maintenance and repair of outdated Soviet infrastructure.
For example, in 1998 six out of 13 international consortia of oil firms involved in oil and gas field projects in Kazakhstan were engaged in the construction or repair of oil pipelines (Dittmann, Engerer, and von Hirschhausen 2001, 141). This outside investment was required for Kazakhstan to increase its output of oil as an independent state. Astonishingly, Kazakhstan's oil production grew from 25.8 million tons in 1997 to 68.7 million tons in 2007 an increase of 62 percent. As a result of the development of new fields and increased oil production, the country will likely be one of the top 10 oil-producing nations in the world within the next 10 years (Kaiser and Pulsipher 2007).
UZBEKISTAN
While Uzbekistan is also endowed with natural resources, it depended on Russia for the production and export of those resources less than did Kazakhstan during the Soviet era.
Uzbekistan was the third largest producer of natural gas in the Soviet Union behind Russia and Turkmenistan. Since Russia had large reserves of gas, most of the Uzbek production was used domestically for local industry; only about 8 percent was exported to Russia, primarily to the Urals through the Bukhara pipeline (World Bank 1993b, 4). Uzbekistan has its own internal gas lines as well as large reserves. In contrast to the Nazarbayev government in Kazakhstan, the Karimov government did not strongly pursue foreign investment to develop new infrastructure to exploit natural gas resources for export shortly after independence. Instead, the county increased domestic production and decreased both imports and exports of natural gas (see figure 3).
For two reasons, this relative independence in energy production is important for understanding the early trajectory of the economic reform process in Uzbekistan. First, the country's self-sufficiency in energy is one of the reasons for the country's slow decline in output relative to the other FSU states (Zettlemeyer 1998). Second, the Uzbek government did not develop a framework designed to attract foreign investors to assist in upgrading the country's natural gas infrastructure until 2004, because the gas was needed to maintain domestic industry and was still subsidized by the state. As of 2008, the government was still setting domestic prices for basic food items and energy, subsidizing these goods for Uzbek citizens (IMF 2008a, 8). The Uzbek government's eventual turn to outside investment in its natural gas industry can be explained by the simple fact that production was barely keeping up with consumption by 2002 (see figure 4).
The Russian firm Gazprom negotiated agreements in May 2004 and in September 2008 with Uzbekistan to build pipelines to transport gas from Uzbekistan and Turkmenistan to Russia, ostensibly to be re-exported to Europe. Additionally, in June 2004 the Russian firm LUKoil reached an agreement to develop Uzbekistan's gas fields, two of which (Kandym and Gissar) are expected to produce 12 billion cubic meters of gas annually. The government of Uzbekistan viewed the agreements with the Russian government as beneficial since Uzbek gas will be bought by Russia at world market prices. It is likely that the Russian government was interested in this agreement primarily for geopolitical reasons (as opposed to economic ones), specifically to increase its alliances within its former sphere of influence, thus limiting future Western oil and gas projects in the region. This strategy has become even more of a concern for Russia following the heated military conflict with Georgia in August 2008.
Uzbekistan was a substantial producer of gold during the Soviet era, producing about one-third of the total of the entire Soviet Union (World Bank 1993b, 4–5). While gold and oil are both natural resource commodities, an important difference between the two is that a country's ability to export gold does not depend on an infrastructure system (such as pipelines) to transport the resource to the market. Further investments were needed to increase gold mining beyond levels of production reached in the Soviet era, but mining operations prior to independence were already such that Uzbekistan was the eighth largest producer of gold in the world (Commodity Research Bureau 2000, 111). Uzbekistan was able to increase its gold production by 22 percent from 1992 to 2005 (according to estimates for that year), providing an important source of revenue for the government since gold is sold for dollars on the world market (Commodity Research Bureau 2003, 111; 2007, 113).
In fact, gold is the country's largest export commodity, followed by cotton. The Uzbek government did (reluctantly) pursue outside investment in production of gold, but again, this was a source to generate external revenue. There were no harmful effects on the domestic economy or the domestic population in increasing gold production for export.
However, policies affecting the agricultural sector in Uzbekistan, specifically a focus on cotton production during the Soviet era, did affect the domestic population and economic structures of the country.
First, Uzbekistan's total area employed for agriculture increased more than any other Soviet republic from 19.2 million hectares in 1949 to 26.6 million hectares in 1958 (Committee for World Atlas of Agriculture 1969, 488). The agricultural sector in Kazakhstan was important too, but it would not have the continuing effects on the republic that were evident in Uzbekistan. The main reason was that the Virgin Lands campaign begun by Khrushchev in the 1950s to grow grain in the Kazakh steppe was largely a failure and was discontinued in the 1970s (Gilbert 2002, 136). The contributions of the Uzbek republic, unlike Kazakhstan, were concentrated in the agricultural sector.
While Uzbekistan is primarily noted for its cotton growing, it was also the largest producer of fruits and vegetables within the Soviet Union (World Bank 1993b, 5). The total production of fruits and berries for the six highest producing oblasts of Uzbekistan in 1970 was a little over three million tons (3,352,000) (Uzbek SSR Tsentral'noe statisticheskoe upravlenie 1971). The most recent comparable data indicate that the production of fruits and berries fell to only 660,000 tons in 1986 (World Bank 1993b, 285). The production of these agricultural crops, traditional to Central Asia, was decreased because of the focus on cotton production (Rumer 1989, 71). A comparison of the production of these two agricultural crops of Uzbekistan illustrates how the agricultural sector in Uzbekistan was fundamentally altered during the Soviet era. Indeed, Uzbekistan was transformed into an economy focused entirely on cotton production—a cotton monoculture. Table 1 shows the increases in the production of raw cotton in the seven largest producing oblasts in Uzbekistan from 1960 to 1970.
The total production of raw cotton by the seven highest producing oblasts in 1970 was a little over three million tons (3,072,000). Cotton production hovered around 5 million tons annually until 2004–5, when it increased again to over 5 million. Estimates for 2007–8 were at 5.5 million tons (Commodity Research Bureau 2008, 65). This output has made Uzbekistan the fifth largest cotton producer in the world.
There were three primary reasons that Uzbekistan was viewed as an ideal republic for the purpose of cotton production during the Soviet era, and all of these factors would in turn greatly influence the development of post-Soviet Uzbekistan. First, it has a favorable climate. Cotton requires sun during the growing and flowering season, a lack of very cold weather, and an abundant water supply (Rumer 1991, 62–63). Uzbekistan's climate had these features, except for adequate rainfall. Rainfall averages about fifteen inches annually, but only about three inches fall during the cotton-growing season of mid-June to mid-August (Rumer 1991, 62–63). Therefore, in order to 'facilitate' the additional water needed for cotton growing, vast irrigation systems were developed during the 1960s around the natural waterways of the Amu-Darya and the Syr-Darya, the two largest rivers that feed into the Aral Sea.
These irrigation projects resulted in a devastating 50 percent decline in the Aral Sea's surface area between 1960 and 1996 (World Bank 2001, 3). The deterioration of this body of water has resulted in worsening environmental and health problems for both Uzbeks and Kazakhs, since both countries border the Aral Sea. If better irrigation systems were developed, they would be more efficient and water quality would improve, resulting in increases in the fish population and lower levels of salinity. By comparison, Kazakhstan has made progress in updating its irrigation systems, in part from a loan through the World Bank (World Bank 2001). The decision of the Kazakh government to update its irrigation methods is largely attributed to a drop in agricultural production, which resulted in a decision to privatize the sector. The agricultural sector, on the other hand, is a major source of income for the Uzbek government.
A second reason to grow cotton in Uzbekistan is demographic. Cotton production is extremely labor intensive, and Uzbekistan is the most populous of the Central Asian republics. As a result of the specialization in cotton production, the country actually had larger shifts of the population from some of the urban to the rural areas in the seven highest cotton-producing oblasts in the 1960s. As a country develops economically, the opposite usually occurs: population shifts from the rural to the urban areas, as people move to the cities for employment in the nonagricultural sector. The fact that the population in cotton-growing oblasts was moving from urban to rural areas to supply the additional labor needed to produce cotton shows the state's focus on cotton production. This trend continued after the 1960s, and by 1991 the rural population was 59.9 percent of the total, the urban population 40.1 percent (World Bank 1993b, 253). By 2000 the urban population was 37.3 percent of the total; the figure decreased slightly to 36.7 percent by 2005 (UNESCAP 2006, 56). Agriculture is still a primary sector of employment, accounting for 30 percent of employment and 22 percent of the country's GDP in 2007 (World Bank 2008). Uzbekistan has a growing working age population, and if agriculture were reformed to reflect more modern methods of production, employment would likely decrease in the agricultural sector, contributing to social instability. Raw cotton is still purchased by state-owned firms at fixed prices and then sold at world market prices, generating revenue for the state.
(Continues...)
Excerpted from In the Shadow of Russia by Pamela Blackmon Copyright © 2011 by Pamela Blackmon. Excerpted by permission of Michigan State University Press. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents
Contents
Figures and Tables....................ixAcknowledgments....................1
Introduction....................15
1 Breaking Apart from Russia....................29
2 Agreeing to Manage Economic Policies in Uzbekistan....................47
3 Economics Determines Politics for Nazarbayev....................67
4 Connecting Specific Reform Policies to Investment and Business....................93
Conclusion....................101
Notes....................115
References....................127