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International Integration and the Structure of Exports in Central Asian Republics Martin Myant and Jan Drahokoupil1

Abstract: Two European political economists examine the restructuring of external relations of the Central Asian republics (CARs) after the disintegration of the Soviet Union by focusing on the structures of exports based on evidence provided by past balances of payments and trade data disaggregated at a relatively high level. The authors’ investigation identifies shifts in the commodity composition of exports since the CARs’ independence, both in terms of the share of major commodity groupings (e.g., toward raw materials) and in the quality/valueadded of goods within specific commodity groups, as well as the spatial pattern of export destinations. The paper also addresses differences in the CARs’ trade performance during the post-Soviet period, which remain small despite the substantial differences in resource endowments and policy orientations. Journal of Economic Literature, Classification Numbers: F14, F40, O11, P50. 1 figure, 11 tables, 40 references. Key words: Central Asia, Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan, Turkmenistan, Eurasian Economic Community, economics of transition, economic development, foreign trade, GDP, international integration, composition of exports, autarkic industrialization.

INTRODUCTION

A

mong the new countries emerging from the dissolution of the USSR, it is perhaps the Central Asian Republics (CARs) of Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan, and Turkmenistan whose economies have been most impacted by the severing of trading ties within the Soviet economic bloc. This paper seeks to analyze the ensuing changes in these countries’ economic ties with the outside world by focusing on the structure of their exports, based on careful examination of available data to assess their relative levels and forms of international competitiveness. And although every effort was made to obtain adequate data, no attempt is made here either to evaluate the methodology that guided their compilation or to produce a precise hierarchy of competitiveness, as in the World Economic Forum’s indices (see Lopez-Claros et al., 2006). Rather we derive assessments and predictions of forms of international economic integration from detailed evidence of past balance of payments and trade data, following the latter to a relatively high level of disaggregation. These are set against an approximate hierarchy of forms of international integration, following Gereffi (1995) and other authors. Primary commodity exports generally provide unstable and relatively low incomes, albeit with some important exceptions. Exports of technologically advanced and branded products, conversely, generally provide the highest 1 Respectively, Professor, Business School, University of the West of Scotland, Paisley PA1 2BE, UK ([email protected]) and Senior Research Fellow, Mannheim Centre for European Social Research (MZES), University of Mannheim, D-68131 Mannheim, Germany ([email protected]).

604 Eurasian Geography and Economics, 2008, 49, No. 5, pp. 604–622. DOI: 10.2747/1539-7216.49.5.604 Copyright © 2008 by Bellwether Publishing, Ltd. All rights reserved.

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income levels. However, a country can develop and grow by incorporation into networks controlled by transnational corporations (TNCs) based in high-income countries. Its firms can join “buyer-driven” networks, as is typical for garment and footwear manufacturing, in which production by local firms follows specifications stipulated by a TNC. International integration can also occur via “producer-driven” networks, in which a TNC establishes subsidiaries undertaking component manufacture or assembly tasks, a practice typical of the motor vehicle industry.2 Integration within both types of network can provide rising income levels, depending on the complexity of the tasks undertaken. Both can provide (but do not guarantee) a base for a country’s firms to develop their own products that can compete on international markets. The structure of a country’s exports therefore indicates its current level of competitiveness and its potential to increase that level. A standard view of transition has emphasized internal liberalization, privatization, and opening of the economy as universal remedies leading to a clearly positive outcome. The present study points rather to the potential for both positive and negative outcomes from different aspects of international integration. Free trade can lead to beneficial new export opportunities, but also to loss of capacity if domestic producers fail to adapt to the shock of adaptation from the protected Soviet environment. Free movement of capital can lead to new investment and export opportunities, but also to an exodus of wealth. Free movement of labor can bring new workers, or spur migration of a country’s labor force to gain new skills abroad. It can also facilitate “brain drain,” impeding new development. This study demonstrates the different forms of integration in the CARs, associated with different starting conditions and transition strategies. Countries that emphasized fuel exports (Kazakhstan and Turkmenistan) have experienced rising GDP alongside a narrowing of their economic bases, losing much that was inherited from the past. Kyrgyzstan followed most closely the neo-liberal path, but the outcome was a similar loss of the established economic base and descent into dependence and peripherality. Uzbekistan, conversely, pursued statesupervised transformation, using the established base to prevent rapid peripheralization. However, striking though these differences may be, the analysis ultimately shows very similar outcomes. The CARs remain peripheral economies largely excluded from, let alone able to move up the hierarchies within, international production networks. STARTING CONDITIONS: THE SOVIET LEGACY The starting point for the post-communist transformation is the legacy of development within the planned economy of the Soviet Union. Although gaps in the data preclude a full assessment of the degrees of dependence on (and integration within) the wider Soviet economy, the CARs were clearly among its less developed republics and suffered from the same stagnation in industrial output as the more developed republics during the period from 1970 to 1986. Although rates of economic growth were on a par with those for the USSR as a whole, in all cases productivity increased more slowly (Goskomstat SSSR, 1987, pp. 132, 142). Development took the following three general forms. The first was production of raw materials for the Soviet Union as a whole. In 1989 Kazakhstan, with 5.8 percent of the USSR’s population, produced 18.7 percent of the USSR’s coal, 10.1 percent of its iron ore, and significant shares of various other minerals. By the end of the Soviet period, it had begun 2See,

for example Liu and Yeung (2008) in this issue.

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to emerge as an oil producer, with 4.5 percent of total USSR output (Goskomstat SSSR, 1991, p. 358). Uzbekistan, with 6.8 percent of the Soviet population, accounted for 62.4 percent of Soviet cotton output in 1989, and other CARs also produced agricultural and mineral products reflecting their natural endowments. The second form of development was industrialization, at least in part for all-Union purposes. This included steel (4.4 percent of the Soviet total) and other semi-manufactures in Kazakhstan, and chemical products (e.g., nitrogen fertilizer) in Uzbekistan. There were some branches of machinery production, including tractors in Kazakhstan and cotton-farming equipment in Uzbekistan, alongside some quite modern sectors, such as aircraft production in Tashkent. Kyrgyzstan benefited from a sugar refinery, largely processing imported sugar from Cuba, and Tajikistan focused on the production of electrical equipment and domestic refrigerators. The third form of development was autarkic industrialization, i.e., producing for consumption within the republic rather than for the entire Soviet market, featuring consumer goods industries in each republic at per capita output levels roughly half that of the USSR as a whole (Goskomstat SSSR, 1987, pp. 186–191). Thus Uzbekistan, despite its status as the major cotton-producing republic, registered a per capita textile output only 64 percent of the all-Union average in 1986. Despite its stunted level of development, such autarkic industrial capacity nonetheless represented a base that could be used to support post-Soviet development. Data from the Soviet period give some indication of the mutual interdependence of the republics of the USSR, but figures on exports and imports among them must be treated with caution. They are based on internal Soviet prices, which differed markedly from world prices, undervaluing raw materials relative to manufactured goods. Thus although every CAR appeared to be in deficit in 1989, subsidized by other republics, the use of different relative prices can reverse that result (Spechler, 2008, p. 25). More detailed figures for Uzbekistan in 1989 show exports to other Soviet republics and countries outside the USSR equivalent to 27.9 percent and 5.3 percent of the republic’s GNP, respectively, while imports from other Soviet republics and from outside the USSR stood respectively at 39.4 and 6.9 percent of GNP (Goskomstat Republiky Uzbekistana, 1991, p. 13). Because exports to the RSFSR (Russia) may have been sold on to other countries, these figures need not show Uzbekistan’s full linkages to the world economy. Further Uzbek trade data confirm the strong contribution from production surpluses in cotton, fruits, and vegetables alongside deficits for garments and footwear, with minimal exports for the latter (ibid., p. 224). This, then, was an economy that had a large autarkic component and that, if it could find markets for its cotton, would not suffer too much disruption from the break-up of the USSR. Figures for Turkmenistan suggest an even higher level of autarky, with all exports equivalent to 25.2 percent of GDP (calculated from Goskomstat Turkmenskoy SSR, 1991, pp. 4, 27). Remarkably, light industry provided the bulk of exports (12.3 percent of GDP), amounting to roughly twice the level of light industrial imports. Fuel exports were still only 7 percent of GDP, albeit with the possible need to bear in mind the artificially low price of fuel in the USSR. Thus the economy of Turkmenistan, like that of Uzbekistan, provided a base for autonomous development, but was also likely to suffer from the severing of established economic ties.

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THE TRANSITION All CARs suffered from a “transformation depression,” as experienced in other postcommunist countries, caused principally by the breakdown of economic relations among the former Soviet republics (e.g., de Melo and Gelb, 1996). The end of central planning and allocation of resources was accompanied by disintegration of the payments system among republics, cutting enterprises off from former markets and sources of supply. Those activities most dependent on outside contacts were therefore affected most severely. The depth and duration of the depression varied between republics, depending on the starting conditions, the degree of external dependence, the ease of establishing alternative international ties, and the policies pursued by the various republican governments. The depression in Central Asia was deeper than in the post-communist countries of Central and Eastern Europe, and took a more general form, including declines in industrial and agricultural output as well as an exodus of labor from established sectors. In many republics, the movement of people seeking employment spilled across republic borders and resulted in substantial temporary and permanent emigration. Those leaving were often the skilled and educated, predominantly identified with European nationalities who had been important agents of Soviet-era modernization in enterprises of all-Union significance.3 Their departure was therefore highly disruptive and accentuated economic isolation. The opening of CAR economies to imports also led to the narrowing of their economic structures with the loss of existing consumer goods sectors. This increased the CARs’ dependence on a few internationally tradable commodity exports, which required minimal integration among the economies of the region. However, even raw material exports faced problems, as most enterprises lacked the expertise to sell internationally and some, particularly oil and gas, were tied to established export routes. The nadir in reported GDP was reached in 1995 in Uzbekistan, Kazakhstan, and Kyrgyzstan, in 1996 in Tajikistan, and 1997 in Turkmenistan. The declines in recorded GDP from 1989 levels were 18 percent in Uzbekistan, 39 in Kazakhstan, 49 in Kyrgyzstan, 61 in Tajikistan, and 48 percent in Turkmenistan (EBRD, 2007). There was a return to recorded growth across the region from 1996/1997, accelerating into rapid growth after 2003. By 2007, GDP levels of 1991 had been surpassed in Turkmenistan (201 percent), Kazakhstan (156 percent), and Uzbekistan (148 percent), while both Kyrgyzstan and Tajikistan lagged only marginally behind the 1991 benchmark (96 and 94 percent, respectively) (ibid.). The experience of individual countries is summarized below, based on international trade data as cited and selected academic research (Rumer and Zhukov, 1998; Pomfret, 2006; and Spechler, 2008). Uzbekistan. Uzbekistan experienced the shallowest transformation depression (e.g., see Melvin, 2000, p. 83–85). This largely reflected starting conditions, as much of its industry was relatively independent of other parts of the former Soviet Union. It was also assisted by policies limiting imports and by some deliberate import substitution, including attempts to maximize food self-sufficiency.4 The state secured a measure of economic strength by 3The emigration of Russian, Ukrainian, and other European nationalities from the CARs, which began late in the Soviet period and accelerated as the USSR disintegrated, was not due solely to economic decline but also reflected perceived or real ethnic tension between these groups and the titular nationalities of these republics. A similar impetus to emigration was the ethnic restratification in public-sector employment in favor of the titular nationality groups in the early years of the CARs’ independence. 4For example, see Erlanger (1992).

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retaining control over exports of the main commodity, cotton,5 using the profit this yielded (i.e., the difference between purchase prices paid to farmers and export prices on the world market) to sustain basic services and even support a certain level of industrial investment. Privatization was gradual, restricted at first to smaller enterprises, and inward investment was limited. This strategy of gradual transformation, controlled by the state, led to conflict with international agencies, but avoided the deeper economic collapse experienced elsewhere. Kazakhstan. Kazakhstan endured a more serious depression, characterized by a collapse in its manufacturing industries that were most heavily dependent on outside trade ties. Output of pig iron and crude steel fell to 46 percent of the 1989 level in 1994 (UN Statistical, 2001, p. 487), but gradually recovered. After 1999, GDP grew strongly. In fact, GDP growth between 1999 and 2006 was more rapid than for exports in real terms (despite the expansion of oil production),6 although the dollar value of exports increased far more rapidly. Turkmenistan. After the dissolution of the USSR, Turkmenistan was ruled until December 2006 by all-powerful President (and former republic CPSU First Secretary) Saparmurad Niyazov and a compliant parliament inclined to classify the country’s economic statistics as state secrets. Accordingly, detailed export statistics for the period of transition are not available. However, it is possible to ascertain that the dollar value of exports registered a tenfold increase between 1998 and 2007 (International Trade Centre, n.d.), suggesting benefits from both price and quantity movements for gas exports. The country thus benefitted from its primary commodity exporter position. Kyrgyzstan. Kyrgyzstan’s small manufacturing sector collapsed, leading to a narrowing of the republic’s industrial base. As the CAR adhering most closely to the “Washington consensus” model, combining liberalization with a form of voucher privatization for larger enterprises, it sustained a dramatic decline in economic activity as well as the asset stripping associated elsewhere with that form of privatization. GDP began to recover in 1996, but export growth was unstable and was not accompanied by consistent growth in industrial output. Rather, private consumption was the driving force behind the resumption of GDP growth. Commitment to a Western model of transition did have some benefits, however, as the Kyrgyz Republic since 1992 has received foreign aid to cover its budget and balance of payments deficits. Unfortunately, this has led to escalating dependence on outside sources of financing, and the gradual accumulation of a large debt service burden.7 Tajikistan. Finally, Tajikistan suffered from a brief civil war (1992–1993) and subsequently from a prolonged political stalemate (a UN-brokered peace process concluded in 1997), but retained the ability to produce and export aluminum. However, a strong GDP recovery was not based on recorded exports: trade and the current account remained substantially in deficit, making the country dependent on external assistance. Rather the economy benefitted from remittances sent from Tajik workers in Russia, probably under-recorded in published statistics, and from some Russian financial assistance in exchange for military cooperation. 5Uzbekistan

currently is the world’s second-ranking cotton exporter. numbers in 2006 (1999 = 100) were 199 for GDP and 188 for exports. 7A welcome addition since 2000 has been remittances from citizens (often with high skill levels) working in unskilled jobs abroad, mostly in Russia and Kazakhstan, but this is not a basis for sustained growth through integration into international production networks. 6Index

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Fig. 1. Exports as a percentage of GDP, by exchange rate and PPP, 2007. Value for Kyrgyzstan at the official exchange rate is for 2006.

FORMS OF INTERNATIONAL INTEGRATION Unlike the situation in many other parts of the world, the modes of integration of the CARs into the international economy are dominated by export trade rather than inward FDI. Prior to their independence, the Soviet Union was the destination for 88 percent of these countries’ exports in the late 1980s (Goskomstat SSSR, 1991, p. 636), and Russia continued to play a major role even in 1995. However, from the mid-1990s the CARs responded to the disintegration of economic ties among the former Soviet republics by seeking new markets beyond the FSU. By 2004, Russia accounted for only 47 percent of exports from Turkmenistan, 22 from Uzbekistan, 19 from Kyrgyzstan, 15 from Kazakhstan, and 7 percent from Tajikistan.8 These new export markets were located primarily in Europe, China, and the United States, while trade among the CARS remained quite limited (Spechler, 2008, pp. 120–125). An important question is whether this trade involves incorporation of the CARs within networks with the potential to advance their status beyond that of peripheral economies. Figure 1 shows exports as a percentage of GDP, the most simple indicator of integration into the international economy by virtue of trade in goods and services. The figures (light grey bars) that represent the official exchange rate suggest a large degree of openness of the economies (e.g., relative to comparable statistics of 11 percent for the United States, 21 for India, 30 for Russia, and 40 percent for China).9 However, because the prices of exported goods are likely to be closer to world prices than those of domestically traded goods, we also show exports as a percentage of GDP converted by purchasing power parity (PPP; black bars). This substantially reduces the impression of economic openness, especially for the poorer CARs. Indeed, it is not clear that the CARs are less autarkic than they were in Soviet times. 8Calculated

by the authors from International Trade Centre (n.d.). higher levels are typical for relatively developed countries that specialize in exporting manufactured goods—for instance, 46 percent for South Korea and 86 percent for Slovakia. 9Even

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Table 1. Key Elements of the Balance of Payments as a Percentage of GDP, 2007 Element Current account Merchandise exports Merchandise imports Workers’ remittances Official aida FDI net inflow Debt

Uzbekistan 23.7 35.8 19.5 – 0.9 1.2 17.4

Kazakhstan -6.6 45.4 31.8 0.2 0.2 4.9 90.4

Turkmenistan

Kyrgyzstan

36.1 71.2 29.6 – 0.2 6.4 8.4a

-6.5 40.4 70.6 19.2 11.0 6.0 60.5

Tajikistan -10.2 11.2 58.5 36.3 8.5 2.0 43.7

a2006.

Source: Compiled and calculated by authors from EBRD, 2007 and World Bank, 2007.

With the exception of Kyrgyzstan, the CARs have tended to have balanced current accounts, with Uzbekistan and Turkmenistan ultimately reporting impressive surpluses. The variety of patterns of international integration (manifest in major elements of the balance of payments) in Central Asia is indicated in Table 1. Tajikistan and Kyrgyzstan appear to have strong remittances from abroad, with neither able to secure an external balance from exports of goods and services. Kyrgyzstan’s negative external balance is reflected in its high level of indebtedness. Conversely, Kazakhstan and Turkmenistan have healthy trade surpluses and substantial inward investment. Uzbekistan shows the results of a more autarkic strategy with, in 2006, an exceptionally large current account surplus. Further clarification of the countries’ positions in the international division of labor can be demonstrated by analysis of export structures, as shown in Table 2. The starting point is an SITC-based classification distinguishing between raw materials, fuels, semi-manufacturing, machinery and other complex activities, and light industry. 10 In Kazakhstan and Turkmenistan, export structures are dominated by fuels, whereas in Kyrgyzstan and Uzbekistan the non-fuel raw materials category (primarily gold in Kyrgyzstan) has tended to be of equal or greater importance. Although Uzbekistan specialized in raw materials, by 2006 growth in exports of simpler semi-manufactures and some complex products was evident. Tajikistan relied heavily on semi-manufactures (aluminum) for a substantial portion of its exports. 10We combine SITC3 (Standard International Trade Classification, Rev. 3) categories as follows: non-fuel primary products (0, 1, 2, 4), fuels (3), semi-manufactures (5, 6, excluding 54), machinery and other complex activities (7, 54, 87, 88), broadly corresponding to incorporation into production-driven networks, and light industry (8, excluding 87 and 88), which broadly corresponds to incorporation into buyer-driven networks. A residual category is one “not classified by kind” (9) (see Table 2). In the context of coping with the transition shock, it is useful to group SITC categories 5 (chemicals and related products) and 6 (manufactures of leather, rubber, cork, paper, textile yarn, and nonmetallic and metallic minerals) together, as semi-manufactures can compete by price without the need for substantial development of the product. The category “machinery and complex activities” includes machinery and transport equipment, medicinal and pharmaceutical products, scientific and control instruments, and photographic and optical equipment, while “light industry” includes such items as plumbing/heating/lighting fixtures, furniture, travel goods, apparel and clothing, and footwear. This classification therefore differs slightly from the one used by Greskovits (2005), who adapted SITC categories into four groupings: heavy basic, heavy complex, light basic, and light complex. In the latter classification, shares for the two “complex” categories increased, due largely to motor vehicle and electronics exports from post-communist economies in Central and Eastern Europe. However, the Greskovits classification is not ideal for our purpose, as it misses distinctions between agricultural raw materials and fuels and semi-manufactures that are especially relevant for the CARs.

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Table 2. Export Structures of Central Asian Republics, as Percentage of Exports for Combined SITC Categories, 1995 and 2007 Year

Fuels

Raw materials Machinery Semiexcluding and complex manufactures fuels activities

Light industry

Not classified by kind

Kazakhstan 1995 2007

25.0 66.0

17.3 10.4

50.4 20.7

6.3 2.0

0.9 0.1

0.0 0.8

0.1 5.3

0.5 0.7

0.0 0.1

10.1 10.3

5.0 9.2

0.8 21.7b

0.9c 1.7

– 2.2

– 0.0

2.7c 12.0

0.4c 1.2

– 15.8

Turkmenistan 1997 2006a

76.5 86.6

14.4 2.1

1995 2007

11.1 24.7

39.6 20.8

1995

– 0.2

45.2c

8.5 3.4 Kygyzstan 33.6 13.3 Tajikistan

2006a

25.0

52.2d 69.0 Uzbekistan

1995 2006a

11.7 16.8

67.0c 28.2

8.0d 24.8

aData

are incomplete, and do not sum to 100 percent, based on approximately 98 percent of mirrored export data. classified by kind” in the case of Kyrgyzstan refers to gold. cFigures are incomplete and should be treated as the minimum for the category. dFigures are only approximate (HS02 54 could not be deducted). Source: Compiled and calculated by authors from International Trade Centre, n.d.; UN COMTRADE, n.d.; UN International, various years. b“Not

More detailed annual data reveal finer trends within the structure of industrial exports not always evident from the coarser time scale used in Table 2. Both Kazakhstan and Kyrgyzstan have experienced some “downgrading” of their industrial export structures, with shares of the complex sectors (i.e., industry after exclusion of raw materials) declining. Recent output from the Tengiz offshore oil field and from several natural gas deposits now on stream appear to have tilted the export balance heavily in the direction of fuels (away from the traditionally dominant semi-manufactures). In Kyrgyzstan, the export contribution of light industry started to grow significantly after 2001, and light industry in Turkmenistan appears to have followed a similar trajectory after 1997. In the sections of the paper that follow, we examine the export statistics for each CAR at a higher level of disaggregation, making it possible to identify not only export specializations, but also the positions of the CARs in the networks of production organized by TNCs. The use of unit values (the price per kilogram, derived from international trade statistics as total revenue from a category of exports divided by total weight), relative to the world average for that product group, makes it possible to assess the relative quality of a country’s exports and has been widely used for assessing performance of economies in Central and

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Eastern Europe (Landesmann and Burgstaller, 1997; Myant, 2003, Ch. 13).11 One can expect to find the highest unit values from the home countries of TNCs and for sophisticated components within their production chains that may be produced in other countries. Lower values are typical of peripheral economies joining buyer-driven networks and unable to claim the high prices enjoyed by the firms controlling technology and brand names. Raw materials and semi-manufactures are typically simple and homogeneous unbranded products that show less variation in unit values. However, for the reasons outlined above, reliance on exporting such products leads to lower income levels than exports of manufactured goods, albeit with important exceptions for certain raw materials. We present data for each CAR in the form of two tables,12 compiled and calculated by the authors from the International Trade Centre (n.d.). The first shows the percentage share in exports for selected groups of products, chosen because of their significance in total exports and because of the potential they suggest for future growth. This is supplemented and clarified in a second table presenting unit values for a narrow range of industrial products selected after completion of our comprehensive investigation of each country’s trade data to the sixdigit level.13 This made it possible to identify any significant export activity within any broader SITC3 category. Taken together, these tables demonstrate any basis that may exist for integration into international production networks that would afford the possibility for these countries to attain a higher level of competitiveness and progress beyond economic structures dependent on raw material exports. The striking feature throughout, as will become evident in the analysis, is the very low share in exports of any sophisticated products and the generally low unit values of particular manufactured goods that are exported. We also attempt to discern the “direction” of exports in order to show the extent to which CAR economies may be integrating within regional networks, with other former Soviet republics (beyond Central Asia), or with countries elsewhere in the world. Uzbekistan Table 3 details the shares in total exports from Uzbekistan (by dollar value) for important products (and products registering significant share increases) in 2001 and 2006, with cotton continuing to be the most important export product during the period. As such, the table shows both signs of continuity with the past as well as any trends toward exporting of more sophisticated products. Indeed, there are indications of some upgrading in Uzbekistan’s export structure, despite a continuing strong emphasis on exporting raw materials and basic products. Uzbekistan’s economy is more diverse than that of the other CARs, as might be expected from its larger population and broader initial industrial base. There has also been a progressive diversification of markets for Uzbek exports such that both regional integration and old links from the Soviet period appear relevant in only a few 11A high unit value is associated with high-quality products; e.g., the unit value of a motor vehicle exported from Germany is much higher than that of one exported from an Eastern European country, enabling the German industry to support substantially higher wage levels. 12However, the tables for Turkmenistan and Tajikistan are combined, and an additional table is presented for Uzbekistan's foreign trade in motor vehicles, cars, and car components. 13The Harmonized System 2002 (HS Revision 2, or HS02) for classifying goods is a six-digit code system comprising approximately 5000 article/product descriptions that appear as headings and subheadings, arranged in 97 chapters, grouped in 21 sections. The six-digit codes can be broken down into three parts. The first two digits identify the chapter in which the goods are classified. The next two digits identify groupings within that chapter, and the final two digits provide even more specific descriptions.

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Table 3. Percentage Shares of Uzbekistan’s Exports of Selected Groups of Industrial Products, 2001 and 2006 HS02 code 52 27 87 28 39 85 61 90 74 79

Description Cotton Mineral fuels Motor vehicles Inorganic chemicals Plastics Electrical and electronic equipment Knitted apparel Optical equipment Copper Zinc

2001

2006

42.90 17.48 3.19 3.59 0.14 0.47 0.48 0.03 3.81 1.71

20.05 17.1 10.11 5.35 2.21 1.09 0.68 0.07 7.91 1.81

cases. Cotton has benefited from an expansion of exports to China.14 Copper, zinc, and mineral fuels find varied markets with no dependence on any single customer. Inorganic chemicals (consisting overwhelmingly of uranium), are exported to the United States and the plastics group (predominantly polyethelyne), to Russia and Ukraine. Electrical and electronic equipment includes a wide variety of products, featuring rapid expansion to customers in Hungary and Russia. The knitted apparel category (predominantly cotton T-shirts) is destined to markets in Germany and the United States. Finally, optical equipment (automatic regulating or controlling instruments—903289) is sold largely to Germany. However, it can be noted that, despite the base in production of raw cotton, Uzbekistan has not become a major textile exporter, as it is not incorporated into the buyer-driven networks that dominate such activities, presumably because of a lack of both trading contacts and international confidence in that country’s legal and business environment.15 This may reflect the Uzbek government’s lack of enthusiasm for international contacts, but other CARs also appear unattractive to international business, as indicated by rankings close to the bottom of the World Bank’s index on doing business across borders (Spechler, 2008, p. 124). Uzbekistan’s motor vehicle sector has dramatically increased its exports, a result of the government’s efforts to promote that sector in tandem with the South Korean combine Daewoo’s initial willingness to invest in an automotive joint venture (after Daewoo’s failure to penetrate the more advanced European countries).16 The Uzbek operation, at first a joint venture between Daewoo and the Uzbek state and then a fully state-owned company from 2005, encountered various obstacles and delays, and Daewoo itself was taken over by 14The value of cotton exports to China (HS02, code 52) increased from $2,890 in 2001 to $494,097 in 2006, before falling in 2007 to $298,408 (International Trade Centre, n.d.). 15For example, some large Western garment producers and merchants (e.g., Levi Straus, Tesco, Wal-Mart) have avoided purchases of Uzbekistan's cotton or items made from it out of concern that child labor was utilized in the country's cotton fields. Russia briefly banned imports of cotton from Uzbekistan in May 2008 for an ostensibly different reason—the alleged presence of an insect pest. Some analysts, however, believe that the ban reflected underlying deeper political tensions between the two countries (Uzbekistan Continues, 2008). 16 From 1992 Daewoo adopted a strategy of investing within the emerging countries of Asia and Eastern Europe, and has focused much of its activity in Romania, a country not then poised for early EU accession (for background, see Egresi, 2007).

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Table 4. Foreign Trade in Uzbekistan’s Motor Vehicle Sector as Percentage of Total Exports, 2001 and 2006 HS02 code

Description

87

2001

2006

3.19 11.52

10.11 12.53

2.92 0.70

9.48 1.27

0.03 8.56

0.23 9.09

All motor vehicles Exports Imports

8703

Cars Exports Imports

8708

Car components Exports Imports

General Motors following its bankruptcy. That damaged a number of other investment projects, including those in textiles, but the motor manufacturing project continued and grew, producing GM cars largely from kits imported from South Korea. A more detailed picture of automotive-sector imports and exports is presented in Table 4. The country’s exports are overwhelmingly finished vehicles, with Russia by far the largest market. Components come largely from South Korea and, together with imports of other kinds of finished vehicles, resulted in a trade deficit for the sector as a whole. There have been some reductions in imports of simpler components, indicating expanding domestic production, but this remains overwhelmingly an assembly operation. Should it remain at this level, it will represent only a relatively low level of development, and something of an anomaly in view of the slow progress in the production of less complicated consumer goods in the country. However, GM has referred to plans to integrate the Uzbek operation into its global strategy (e.g., see Republic of Uzbekistan, 2008) which, if pursued in earnest and acceptable to the Uzbek government (and is not undermined by development of a stronger motor industry in Russia), could provide a basis for more substantial industrial development. Table 5 shows comparisons of unit values for products selected from trade data on the basis of growth and shares in total exports. Polymers of the petrochemical ethylene are a basic product for which the unit value is quite close to the world average. Unit values are high for a very few manufactured goods that depend on direct contact with a customer, an obvious barrier for enterprises with limited access to world networks.17 Cars were sold at roughly half the average world unit value. The product in the electrical and electronic equipment category that was closest to the world level was also the least complicated (namely insulated wire and cable), with markets predominantly in Russia and Kazakhstan. Kazakhstan There is selective, limited evidence of an upgrading of export structure in Kazakhstan, with some semi-manufactured goods (e.g., iron and steel products) increasing as a share of 17The figure for category 9032 (which accounted for a minuscule share in exports in 2006) is difficult to interpret, but follows an even larger increase in import values and therefore need not indicate added value in Uzbekistan.

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Table 5. Unit Values of Significant Exports from Uzbekistan as Percentage of World Average, 2006 HS02 code 3901 6109 8703 8504 8507 8544 9032

Description

Relative unit value

Share in exports

Polymers of ethylene T-shirts and vests Cars Electric transformers Electric accumulators Insulated wire/cable Automatic regulating or controlling instruments

93.95 39.60 56.19 23.97 30.63 35.09 485.89

1.98 0.37 9.84 0.16 0.07 0.43 0.02

total exports, but textiles and garments were insignificant and other manufactured products were swamped by the increase in raw material (fuel) exports (Table 6). Other basic products also were important, including refined but unwrought copper, sold throughout the world, and basic chemicals, mostly aluminium oxide, sold to Russia. Table 6. Percentage of Kazakhstan’s Exports of Selected Groups of Industrial Products, 2001 and 2007 HS02 code 27 28 72 73 74 84 85

Description

2001

2007

Mineral fuels Inorganic chemicals Iron and steel Iron and steel products Copper Boilers, machinery, etc. Electrical and electronic equipment

58.24 3.55 11.7 0.23 6.88 1.13 0.45

66.00 3.46 7.84 0.30 5.87 0.53 0.20

Iron and steel, predominantly ferroalloys, were sold to a wide variety of countries, including the Netherlands, Russia, Iran, and China; iron and steel products (some with relatively high unit values; Table 7) were sold mostly to Afghanistan, Russia, and China. Machinery and parts as well as electrical equipment both included a range of products primarily exported to Russia.18 There was, then, a greater indication than in Uzbekistan of ties with former partners in the FSU but, in all cases, exports were mere fractions of the level of 18Trade ties to Russia were strengthened at an official level as a result of a series of agreements (e.g., on customs duties, tariff regulations, and taxation of imports and exports) signed by the prime ministers of Russia, Belarus, and Kazakhstan in January 2008 (Blagov, 2008). The agreements, designed to reinforce movement toward the formation of a customs union among the three countries in the near future, were concluded within the framework of the Eurasian Economic Community (EurAsEC), an organization dedicated to multilateral economic integration among its six member nations of Belarus, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan. The limited progress toward a customs union has thus far represented EurAsEC's primary achievement since its founding in 2000. However, member states remain divided over a variety of issues, including Central Asian water resources, currency policy, and the protection and promotion of investment (ibid.). Although formal agreements such as the one described above may promulgate the removal of barriers to more open trade, informal practices persist and may continue to pose practical obstacles to the conduct of trade.

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Table 7. Unit Values of Significant Exports from Kazakhstan as Percentage of World Average, 2006 HS02 code 7202 7210 7208 7326 8482 8507

Description

Relative unit value

Ferro-alloys Flat-rolled iron products, clad Flat-rolled iron products, not clad Other iron and steel products Ball or roller bearings Electric accumulator

56.87 76.68 44.51 106.77 21.91 28.37

Share in exports 2.48 3.13 0.80 0.06 0.22 0.06

imports. This imbalance is consistent with a general trend toward increasing dependence on hydrocarbon exports rather than diversification favoring manufactured goods. Inward investment in Kazakhstan took three forms involving firms: (a) producing for the domestic market; (b) exporting raw materials and semi-manufactures; and (c) affiliating with the oil industry and seeking to expand and accelerate production. An initial influx of FDI followed privatization of existing enterprises, either the export-oriented or those serving the local economy. Privatization deals in the mid-1990s generated considerable controversy and accusations of corruption, owing to low sale prices, thus making it difficult for many foreign companies to operate in the unstable economic environment (Pomfret, 2006, pp. 47–49). It has been argued that the transfer of shares of Kazakhstan’s metallurgical firms to foreign ownership provided access to foreign markets, as their Soviet-era predecessors had lacked the experience necessary to navigate in these markets (Khasanova, 1998, p. 176). However, the new foreign owners were primarily interested in boosting export sales of basic outputs, rather than further developing domestic industries using that production as inputs—thereby underscoring the foundation of the post-Soviet Kazakh economy as an exporter of simple products. This orientation of the foreign investors in the natural resources sector, as well as the fact that the assets of the country’s large resource enterprises were purchased at what turned out to be remarkably low prices, led to reassessments of the orginal terms of sale by Kazakhstan’s government, prompting their renegotiation on a more favorable basis (e.g., see Peck, 1999; Olcott, 2002, pp. 159–167). Turkmenistan Turkmenistan has demonstrated a presistent strong dependence on mineral fuel exports, with very little growth in exports of manufactured goods, as shown in Table 8. The dominance of natural gas can be expected to continue, in light of a new agreement with Russia, its principal customer. The agreement covered the pricing of Russian gas purchases up to the year 2028, and financing by the Russian gas monopoly Gazprom of the development of new Turkmen gas fields and bulk gas transportation facilities (Bhadrakumar, 2008). A long-term agreement on exports to China, to which a pipeline is currently under construction, also has been concluded (ibid.; U.S. Urges, 2008). The apparent growth in the category “machinery and complex activities” shown in Table 2 is in fact deceptive, reflecting merely Turkmenistan’s imports from, and exports to, Azerbaijan of one category of equipment (890520, floating or submersible drilling or production platforms, presumably for offshore oil extraction) with no value added from

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Table 8. Percentage Shares of Selected Groups of Industrial Products Exported from Turkmenistan and Tajikistan, 2001 and 2006 HS02 code

Description

2001

2006

89.45 0.01 1.24 0.12

86.57 1.22 0.55 0.54

47.83 31.27 1.87 0.33 0.63

66.25 17.88 2.16 1.05 0.78

Turkmenistan 27 39 61 63

Mineral fuels Plastics Apparel Other textile products Tajikistan

76 52 62 87 84

Aluminum Cotton Apparel Motor vehicles Machinery

Turkmenistan.19 Polymers of propylene, a basic petrochemical product with a relatively high unit value close to the world average (as might be expected of a basic homogeneous product; Table 9), lacks a secure single market; it was exported mostly to Russia in 2006. Garment exports are roughly as important in Turkmenistan as in Uzbekistan, with T-shirts similarly commanding a price significantly below the world average. The “other textile articles” category (largely bed linens), with unit values close to the world average, was sold in 2006 mostly to the United States. This type of export is consistent with the country’s policy of investing in textile manufacturing, albeit without establishing permanent contacts with customers and with results that have been judged disappointing (Pomfret, 2006, pp. 94-95, 151). Kyrgyzstan The country’s industry collapsed in the 1990s, a process accompanied by the loss of physical capital stock and minimal levels of private investment. Table 10 reveals the dependence on gold exports,20 but also the signs of movement toward exports of new product types, some of which appear to have registered quite rapid growth. 19An interesting feature of this trade is that it has occurred despite a less than cordial relationship between the two countries stemming from different approaches they have advocated toward demarcation of national territories in the Caspian Sea for the purpose of hydrocarbon development (Azerbaijan and Turkmenistan are contesting the rights to develop the Kyapaz [Serdar] offshore oil field that straddles their mutual maritime boundary). Turkmenistan's embassy in Baku was closed in the late 1990s, and diplomatic relations with Azerbaijan were restored only in late 2007, following the death of former Turkmen president Niyazov (see Mamedov, 2007). 20Even the strength of gold exports has come into question beyond the near future. Output from the Kumtor gold deposit in recent years has accounted for approximately 10 percent of the country's GDP and 20 percent or more of its export earnings (Levine and Wallace, 2007). Most of the country's gold reserves are concentrated in this deposit, at the nearly depleted Makmal deposit, as well as two other new fields (Taldy-Bulak and Jerooy) currently being evaluated for development. Because mine production at Kumtor is projected to peak in 2009 before declining to virtually nothing by 2013 (ibid.), considerable investment in new mine development likely will be necessary to maintain Kyrgyzstan's current levels of gold production.

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Table 9. Unit Values of Significant Exports from Turkmenistan and Tajikistan as Percentage of World Average, 2006 HS02 code

Description

Relative unit value

Share in exports

Turkmenistan 3902 6109 6302

Polymers of propylene T-shirts and vests Bed, table and kitchen linens

92.41 39.85 91.18

1.22 0.19 0.54

45.02 118.01

1.73 0.91

Tajikistan 620342 8704

Men’s cotton trousers Trucks

Glass (overwhelmingly sheet glass) is primarily exported to Russia and Kazakhstan, while electrical products (chiefly filament lamps) also are sold to Russia and other CIS countries. Exports of machinery, dominated by equipment for sorting and washing mineral ores, find receptive users in Uzbekistan and China. The motor vehicle category includes exports of products that have risen and fallen over the years; the recent growth in auto components sold to Uzbekistan suggests at least incipient integration among the CARs around the latter country’s growing industry. Exports of garments (apparel) are almost entirely dependent on Russian buyers. Table 10. Percentage Shares of Kyrgyzstan’s Exports of Selected Groups of Industrial Products, 2001 and 2007 HS02 code 7108 62 70 84 85 87

Description

2001

2007

Gold Apparel, not knitted Glass and glassware Machinery and parts Electrical and electronic equipment Motor vehicles

47.16 0.30 0.07 2.58 3.39 5.46

19.82 6.47 3.55 3.26 2.90 3.43

Table 11. Unit Values of Significant Exports from Kyrgyzstan as Percentage of World Average, 2006 HS02 code 6206a 8474 8539 8708 aValues

Description

Relative unit value

Share in exports

Women’s blouses Machinery for sorting and washing minerals Electric filament or discharge lamps Parts and accessories of motor vehicles

35.00 79.09 13.15 24.74

0.74 0.44 2.21 1.26

are for 2005.

As indicated by Table 11, relative unit values of significant exports were mostly very low, although shares in exports suggest that manufacturing is beginning to make a difference

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to the external balance. Based on the principal export destinations outlined above, it appears that only Kyrgyzstan among the CARs is moving toward greater reliance on trade networks centered in the former Soviet republics. Tajikistan Tajikistan, as indicated in Table 8 above, has become more dependent on its basic export of aluminum, produced by the Tajik Aluminum smelter at Tursunzade, which escaped the destruction of that country’s civil war in the early post-Soviet period, and continues to account for over half of the country’s export earnings despite protracted energy shortages (see Levine and Wallace, 2007; Panfilova, 2008). There are also some manufacturing exports. Category 62 is predominantly men’s cotton trousers, sold to Italy with a unit value around half the world average (Table 9 above). The motor vehicle sector is dominated by small, diesel-powered trucks, with a high unit value and sold almost exclusively to Algeria. Category 84 grew to some significance thanks to a one-off sale to Germany of turbojets. It remains unclear from trade figures what lies behind this and the preceding transactions. The impression is of very few signs of economic transformation, albeit with a hint of a beginning on the familiar road of garment exports. CONCLUSION The data presented above for individual CARs suggests that all these countries are in varying degrees slowly integrating into the world division of labor, replacing their former integration within the economy of the Soviet Union. However, using exports as a percentage of GDP as a broad indicator of autarky shows that the extent of outside contacts is not high, and could even be lower than during the Soviet period. Moreover, the commodity structure of exports demonstrates a move toward simpler products that require little direct contact with customers. The economies are thus heavily dependent on the world prices of their commodity exports, which in a number of cases have moved in a favorable direction until recently. The sudden decline in world oil and gas prices precipitated by the global credit crisis in the autumn of 2008, however,21 could exert considerable downward pressure on the economies of those CARs heavily dependent on fuel exports. Two countries in particular, Turkmenistan and Kazakhstan, where export earnings account for 63 and 48 percent of GDP, respectively (at official exchange rates; Fig. 1) and fuels for 87 and 66 percent of total export earnings (e.g., Table 2), appear particularly vulnerable over the short term. However, Kazakhstan, like Russia, does have a stabilization fund (National Oil Fund) established in 2000 to protect the economy from price swings in oil, gas, and metals.22 The economy of Tajikistan may be somewhat less susceptible to the 37 percent drop in aluminum prices over the same July–October period (Foley, 2008) because of the smaller 21Oil fell from a price of over $140 in July 2008 to below $75 per barrel on October 20 (and appears to be moving to still lower levels); the accompanying decline in natural gas futures was from $13.57 per million BTUs to $6.70 on October 16 (see Romero et al., 2008; White and Bensinger, 2008). 22The fund, with $27.5 billion (U.S.) in reserves in September 2008, is considerably smaller than Russia’s ($190 billion) (National Bank of Kazakhstan, 2008; Romero et al., 2008). The country has generally avoided use of the fund to support the national budget (with the exception more recently for the purpose of promoting agricultural diversification) or off-budget spending (see Linn, 2008), and thus increased the size of its assets by almost 30 percent in the first three quarters of 2008 alone (National Bank of Kazakhstan, 2008).

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share of export earnings in overall GDP (19 percent by exchange rate and 5 percent by PPP). However, the predominance of that commodity in overall exports nonetheless provides grounds for the government’s concern. There are very few signs of integration into networks of production controlled by TNCs and even less evidence of firms from CARs establishing their own networks. The industrial base inherited from the Soviet period is reflected in exports of some semi-manufactures, but little has been developed from the old consumer goods and engineering industries. There is incipient production of cheap garments and textile products, exported to Russia and various advanced countries. Uzbekistan has a significant car-assembly plant, but it is precariously balanced on the margin of an international production network. The absence of exportoriented inward investment in the manufacturing industry is striking; inward investment from manufacturing TNCs is largely directed toward production of consumer goods for domestic markets (Charman, 2007, p. 178; Spechler, 2008, p. 37), which generally requires a lower degree of integration into complex international operations. There are differences among countries, but they largely relate to the potential for raw material exports. Policies have diverged, but (except perhaps to some extent for Uzbekistan) have not affected the course and depth of the transformation depression. In any event, they have not clearly differentiated these countries’ prospects for further growth. Indeed, the striking feature is the similarity in the CARs’ courses of development as they recovered from depression. The exact reasons for this lie beyond the scope of this paper, but probably involve geographical isolation and, above all, institutional frameworks that are unsupportive of outward-looking domestic enterprises and unwelcoming to foreign businesses seeking the kind of close contacts needed to fully integrate CAR firms into international networks. REFERENCES Bhadrakumar, M. K., “Russia Takes Control of Turkmen (World?) Gas,” Asia Times (online), July 30, 2008 [http://www.atimes.com/atimes/Central_Asia/JG30Ag01.html], accessed October 18, 2008. Blagov, S., “Moscow Signs Series of Agreements within Eurasian Economic Community Framework,” Eurasia Daily Monitor, February 5, 2008 [http://www.jamestown.org/edm/article .php?article_id=2372777], accessed October 20, 2008. Charman, K., “Kazakhstan: A State-Led Liberalized Market Economy,” in D. Lane and M. Myant, eds., Varieties of Capitalism in Post-Communist Countries. Basingstoke, UK: Palgrave, 2007, 165–182. de Melo, M. and A. Gelb, “A Comparative Analysis of Twenty-Eight Transition Economies in Europe and Asia,” Post-Soviet Geography and Economics, 37, 5:265–285, 1996. EBRD (European Bank for Reconstruction and Development), Transition Report, 2007. London, UK: EBRD [http://www.ebrd.com/country/sector/econo/stats/index.htm], selected economic indicators, accessed October 9, 2008. Egresi, I., “Foreign Direct Investment in a Recent Entrant to the EU: The Case of the Automotive Industry in Romania,” Eurasian Geography and Economics, 48, 6:748–764, 2007. Erlanger, S., “Uzbeks, Free of Soviets, Dethrone Czar Cotton,” The New York Times, June 20, 1992. Foley, B., “Norsk Hydro Profit Almost Wiped Out by Higher Costs: Update 1,” Bloomberg.com, October 21, 2008 [http://www.bloomberg.com/], accessed October 21, 2008. Gereffi, G., “Global Production Systems and Third World Development,” in B. Stallings, ed., Global Change, Regional Response. Cambridge, UK: Cambridge University Press, 1995, 100–142. Goskomstat SSSR (USSR State Statistical Committee), Narodnoye khozyaystvo SSSR za 70 let (National Economy of the USSR after 70 Years). Moscow, USSR: Finansy i statistika, 1987. Goskomstat SSSR (USSR State Statistical Committee), Narodnoye khozyaystvo SSSR 1990 (National Economy of the USSR 1990). Moscow, USSR: Finansy i statistika, 1991.

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