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Series: Central Asia and Japan: Part 1 Overview of Central Asia and the Southern Caucasus Re-engage Now with Central Asia and the Southern Caucasus!| Tetsuji Tanaka General Manager of the IIST Central Eurasian Study Group Executive Director Central Asia and Caucasus Research Institute [Date of Issue: 30/April/2013 No.0218-0889]

Date of Issue: 30/April/2013

Series: Central Asia and Japan: Part 1
Overview of Central Asia and the Southern Caucasus
Re-engage Now with Central Asia and the Southern Caucasus!

Tetsuji Tanaka
General Manager of the IIST Central Eurasian Study Group
Executive Director
Central Asia and Caucasus Research Institute

1. Geopolitics, culture and pro-Japanese sentiment

The eight interior Eurasian countries-comprising the five Central Asian nations on the eastern coast of the Caspian Sea and the three countries on the western coast, which together account for a land area 10 times the size of Japan-gained independence from the Soviet Union in 1991. They have a typical dry continental climate (sharing the same latitude as Tohoku and Hokkaido in Japan), and are all multi-ethnic nations with 80 to 120 different ethnic groups. Most of them are Muslim with a Turkic heritage (except for Georgia and Armenia, which are the world's most ancient Christian nations and have an Indo-European linguistic heritage).

Historically, they have served as a buffer zone between the surrounding great powers, as well as a crossroads on the Silk Road stretching east to west and the north-south route from the Slavic countries through to Iran and India. Over the last 150 years, the region has been under pax-Slavic dominance-particularly in the latter 70 years, the political and ideological spell of Soviet Russia. Despite this, Islamic culture has been maintained or revived and the region also has a strong latent Asian identity.

The region has evinced a typical 'flying-geese' pattern model of economic development, and receives a huge amount of official development assistance from Japan, a cumulative total of 350 billion yen for Central Asia as a whole up to FY2010.

Japan's victory in the Russo-Japanese War (1904~05) and the contribution to infrastructure-building of the labor put in by Japanese internees immediately after WWII promoted strongly pro-Japan feeling in the region, but this has recently been fading due to the absolute and relative decline in Japan's ODA, and an acceleration of the presence of other countries, including the US and the EU, as well as Korea, China, Turkey, Pakistan and India from neighboring Asia. As indicated by the sudden almost simultaneous prominence of the Senkaku Islands issue, the Takeshima Islands sovereignty dispute and the Northern Territories reversion issue, East Asia is becoming a much tougher place for Japan.

At times like these, Japan should recognize that friendly diplomacy with Central Asia and the Caucasus is becoming increasingly critical for national security, directly or indirectly, in terms of both maintaining and developing as many pro-Japan countries as possible in Central Asia as 'China's backyard' and the 'soft flank of Russia', as well as a region with resources that can be developed and imported. To deepen understanding of the current situation in Central Asia and the Caucasus, the rest of the articles in this series will comprise plain and lucid country briefings from experts.

The Caucasus and Central Asia 2. Political situation: Authoritarian government continues, no soft landing yet for relationship between politics and economy

The independence of Central Asia and the Southern Caucasus from the Soviet Union was something of a windfall, achieved passively as a result of political turmoil at the heart of the USSR in Moscow. Accordingly, while they might be nominally independent, in most of the new republics, the head of the local Communist Party during the Soviet era has simply moved across to become president, continuing authoritarian government that is only a step away from dictatorship.

'Color revolutions' advocating democracy have occurred in a number of countries since 2004, but the succeeding regimes have been unable to break free from the methods of authoritarian governance. Rather than the establishment of the democratic national identities that were expected to emerge when these countries broke free of socialist ideology to create new nations, there has instead been something of a reversion to the tribalism, regionalism and nepotism predating the 'Slavic sovereignty'. As a result, domestic governance leans more toward the rule of man than the rule of law, giving rise to skewed appointments to government institutions and quasi-state-owned enterprises as well as organizational corruption and graft. Looking at the current state of Central Asia and the Southern Caucasus, until a balance is achieved between political democratization and the development and improvement of national economies (the 'soft landing' for politics and economy occurring in developing countries), it cannot be denied that authoritarian governance serves a realistic function as a necessary evil at this particular stage in terms of providing the unifying force and order for the economic activities that will boost national standards of living. However, even in such cases, it must be reiterated that authoritarian leaders (presidents acting as administrators) bear responsibility for minimizing human rights suppression and environmental destruction costs, as well as for fierce international criticism from the West when their actions in this regard are insufficient.

An influx into Central Asia and the Caucasus of US and other Western troops in the wake of September 11 has turned the region into something of an arena for a 21st-century 'The Great Game' featuring Russia, China, the US, the EU, Turkey, Iran, Korea and Pakistan. Traces of the region's position on the Eastern front line during the East-West Cold War are also abundant. In Kyrgyzstan, immediately after the US military moved into the Manas Air Base, Russia revived its presence at the former CIS Kant Air Base, resulting in a situation unusual anywhere in the world of US and Russian air forces continuing to square off at a distance of less than 30 kilometers. Returned Russian President Putin proposed back in August 2008 (when he was Prime Minister) that Russia restore its presence in Georgia, and followed this up in the fall of 2011 with a 'Eurasian Union' initiative that would bring Russia back into Central Asia.

Because of its geopolitical position, Central Asia is forced to participate in the Commonwealth of Independent States (CIS) and many other regional cooperation institutions, the biggest of which is the Shanghai Cooperation Organisation (SCO). The formation and expansion of the SCO is currently greatly benefiting China in particular, but there are hopes that the four Central Asian countries that are members of the China- and Russia-dominated SCO could serve to brake any skewed action which the SCO might take, including against Japan.

Overview of the Central Asian and Southern Caucasian States (31KB)

3. Economic status: Abundant natural resources (mainly energy and rare metals) but growing economic disparities between those countries with and without resources

Central Asia and the Caucasus are basically a group of crop and stock farming nations which retain traditions of nomadic farming and oasis agriculture established before the Slavic sovereignty. What is currently attracting world attention on the economic front, however, is the region's diverse mineral resource deposits-particularly the energy resources (oil, natural gas and coal) which are already the subject of ambitious development projects-and the high development hopes of foreign investors in relation to these resources. Looking at the main mineral resources by world ranking, Kazakhstan stands in second place for uranium, first for chrome, fifth for zinc, and ninth for oil (2.8% of the world market). Kyrgyzstan stands in third place for mercury and 10th for molybdenum. Uzbekistan is 10th for gold, 12th for both uranium and molybdenum, and fourth for iodine and natural gas (a 0.9 percent world share). Turkmenistan is fourth for natural gas (a 4.3 percent world share), third for bromine and sixth for iodine. Azerbaijan in the Caucasus has abundance of crude oil and natural gas (a world share of 0.5 percent for both), and ranks third for bromine and sixth for iodine resources.

However, major disparities are now emerging in the economic performances of the four Central Asian and Caucasian countries with energy resources and the four without. For example, in 1991 when these countries became independent, they all had almost the same per capita GDP level. Now, 20 years on, resource-rich Kazakhstan has a per capita GDP of around US$11,000, 10 times more than resource-poor Kyrgyzstan where the level is around $1,000. This disparity is due in part to responses to two economic development models: (1) the IMF/Anglo-Saxon model which calls for radical liberalization, privatization and marketization; and (2) the Japan/East Asia model, which allows for market intervention by governments and central banks while markets are still undeveloped, as well as progressive institutional reform. Many countries adopted the first model as part of IMF conditionality. While the resource-rich countries have somehow managed to walk the necessary policy tightrope, economic turmoil has predominated in many of the resource-poor countries. Even the resource-rich countries have only recently-some 20 years since independence-finally begun to see a significant number of small-scale manufacturers setting up independently.

As an investment market, other than developing and importing energy and non-ferrous metals, the region offers the merit of labor costs less than half of those of China, but there are also numerous disadvantages that remain basically unresolved. For example, the region comprises only a small consumer market (a total population of 60 million people across all eight countries), the countries are interlocked with no good trade ports, and limited political solidarity dims prospects for economic union. Negative political factors often identified as the country risks for investment in this region include the activities of Islamic extremists and control of foreign capital by authoritarian governments. However, the former are an extremely limited presence in the region and have very little power, contrary to the journalistic sensationalism which flavors reports in Japan. In the case of the latter, while counter services tend to be inefficient and there is too much room for corruption, at the current stage of economic development, this form of government actually functions to protect foreign capital stability.

In any case, while these countries may look like resource-rich strong performers, they really need to return to building economic structures that promote exports and import substitution rather than leaning too heavily on resource development as the engine for their economies. They have seen how the reliance on energy development in their former suzerain and neighbour Russia has made the Russian economy extremely vulnerable to fluctuations in international oil prices. Moreover, developing alternative sources of energy to oil is now a major international trend. There is also a strong tendency for foreign capital other than that invested in resource development or in construction and real estate in certain cities (Astana and Tashkent, etc.) to concentrate in tertiary industries such as retail, distribution, hotels and restaurants, and finance and exchange business which have a quick capital turnover. With country risk still high and a lack of companies in which to invest, large-scale offshore investment capital is still failing to pour into the manufacturing industry where long-term capital is needed.

Trends in Real GDP Growth Rates of Central Asian Countries Post-Independence (116KB)

4. Relations with Japan and Japan's role: Need for multi-faceted diplomacy that goes beyond resource development

During the 1990s, the relationship between Japan and Central Asia was primarily defined by Japan's status as the region's biggest ODA donor country, but entering the 2000s, Japan slipped to fourth or fifth place in the donor stakes. Where Japan is currently investing substantial effort in its economic diplomacy with Central Asia is in private-sector investment in rare earth and rare metal development and imports and participation in oil and natural gas development. Resource diplomacy and ODA are likely to continue to characterize the relationship between Central Asia and Japan for the next few years, but if Japan envisages having a strong, stable relationship with Central Asia in place 20 or 30 years from now, it will be vital to work harder toward more multi-dimensional exchange, not only developing resources but also exporting a wide range of industrial technologies, providing environmentally-friendly systems and technologies, supporting better education and medical care, and pursuing a broad-ranging cultural exchange program. Central Asia too is looking for that kind of relationship.

So how should Japan approach Central Asia and the Caucasus?

Outside of resource diplomacy, the region certainly has strong prospects as
(1) a direct investment market for manufacturing after countries like India and Indonesia, and
(2) for participation in cross-border international tourist route development along the old Silk Road, as well as the feed-in of large numbers of tourist groups. From a more long-term and historical perspective, however, strategies such as the following should also be explored.
(3) Japan's economic aid should be directed at reducing the economic disparities among the Central Asian and Caucasian countries toward the development of a regional economic union. Back in August 2004, the Japanese government set up the 'Central Asia plus Japan' forum mainly to promote the formation of such a community, but while there has been considerable progress at the bilateral level, no substantive moves have yet been made in terms of the integration of Central Asia as a whole.
(4) Japan needs to contribute to eliminating the negative legacy of the Russian era in Central Asia. In particular, Japanese experts and academics have a lot to offer in addressing the issues of Aral Sea drought damage and residual radioactivity around Semipalatinsk.
(5) Japan should help to foster a group of small- and medium-sized buffer states who can bring a certain amount of political and economic weight to bear in the standoff between China and Russia (as well as between Chinese and Slavic ethnic groups), which is deeply rooted in history and geopolitics. The creation of a stable buffer zone would play an important role in the peace and security of the Eurasian interior, and even in peace in East Asia.
(6) Japan needs to look at the transfer of our economic muscle, various types of technology and culture to Central Asia and the Caucasus in the 21st century in terms of a millennium-scale backward flow or a 'return gift' for those products of Western civilization which advanced eastward (for example, the artefacts in the Shoso-in Treasure Repository in Todai-ji Temple, Buddhism, etc.).

5. Central Asia and Southern Caucasus country rankings: Western assessments still low

Various country rankings for the Central Asian and Caucasian states are shown in the attached table (68KB). Kazakhstan, which has the greatest resources in the region, is doing quite well, rising to 51st place out of 144 countries in the Global Competitiveness Report produced by the World Economic Forum, the group which also hosts the annual Davos Forum. However, pro-Western countries Kyrgyzstan and Georgia seem to be ranked a little higher than merited given their actual economic strength.

(original article : Japanese)
(For the Japanese version of this article)

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