Briefing: Central Asia & BRICS
The economic impact of BRICS partner status obtained by Uzbekistan and Kazakhstan in October 2024.
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Uzbekistan and Kazakhstan obtaining BRICS Partner Status will help them assume intermediary roles between established and new global financial systems.
- Presidents of Tajikistan, Uzbekistan, Turkmenistan, Kyrgyzstan, Kazakhstan all attended the BRICS summit in October.
- Kazakhstan and Uzbekistan have obtained partner status since the Kazan summit in October 2024.
- Kazakhstan and Uzbekistan represent the bulk of the central Asian states’ economy, accounting for 57.7% and 22.2% of the total GDP respectively.
Kazakhstan and Uzbekistan: Positioning for Advancement
Uzbekistan, with a robust growth rate of 6%, and a population of 37 million, stands as the largest market in Central Asia. By 2050, the population is projected to reach 50 million, indicating significant market expansion and a rising consumer base. The economic growth rate, if sustained, will translate into increasing purchasing power, positioning Uzbekistan as a lucrative investment destination.
Kazakhstan has a growth rate of 5%, and with a population of 20 million is the second largest market in Central Asia. It boasts marginally higher transparency, and a more robust economy with higher per capita GDP than Uzbekistan.
Both countries are benefitting from influx of investments and support from international and regional financial organizations; the International Finance Corporation Committed 1.04 billion USD to Central Asia in 2024, supporting the development of their capital markets and their key sectors such as energy and mining.
The Asian Development Bank’s 2024-2028 strategy encompasses support for Uzbekistan’s transition to a green economy, support for private sector competitiveness, and investments in human capital. In Kazakhstan, the ADB has a sovereign portfolio of loans worth 452.2 million USD and 865 million in non-sovereign financing.
Regional Middlemen
In the aftermath of Western sanctions on Russia following the outbreak of the Russia-Ukraine war in 2022, both Kazakhstan and Uzbekistan have witnessed a surge in Russian investment and trade. Russian companies facing operational risks due to sanctions have increasingly looked to these Central Asian nations as crucial economic partners and outlets. Both countries saw significant increases in Russian business being established since 2022, tripling in Uzbekistan compared to 2021.
By obtaining BRICS Partner Status, Kazakhstan and Uzbekistan are now poised to act as vital intermediaries between established Western financial systems and emerging alternatives. Their strategic position allows them to facilitate cross-system interactions while presenting a neutral ground for global operators. Both countries have received significant investments from the US and Europe alongside Russian and Chinese capital, reinforcing their value as economic hubs that balance multiple interests.
BRICS & The New Development Bank
By obtaining partner status, they gain access to the mechanisms of the emerging bloc, including the New Development Bank, as well as the local currency cross border trading potential raised during the Kazan Summit.
By not joining outright, or delaying their applications, they preserved their neutrality. They may yet to choose to obtain full member status but will likely do so in a calculated manner that does not alienate European or American governments, to ensure continued benefits of their economic engagements. Despite China and Russia being major trading partners for both nations, both EU and US represent important partners for them, with 37% of Kazakh exports heading to the EU.
Reform and Transparency Challenges
Despite the considerable growth of the economies, their role as possible intermediaries for business operating both within western and eastern financial hemispheres, they both suffer from lack of transparency and a relatively troublesome financial and economic system.
While improving in year to year standings, Kazakhstan ranks at 93 out of 180 in the global corruption index, with Uzbekistan coming in at 121. Oscillating rates of year-on-year investment rates signal varying confidence in the economic reforms in both countries, but the general trend of growth indicates that confidence is slowly growing in the long term despite inconsistencies in reform implementation.
Outlook
Monitoring the implementation of reforms and improvements in the business climate will clarify the cost-benefit dynamics of investing in these economies.
The trend remains positive, with average GDP growth rates of 5-6% in Kazakhstan and Uzbekistan. Continued support from regional and international partners, coupled with the development of human capital, bodes well for long-term economic prospects.
Geographically positioned between China to the east, Russia to the north, and South Asia to the south, both countries offer strategic value. If reforms and confidence-building measures are consistently implemented, their potential for business and investment will increase significantly, creating opportunities across various sectors, from energy to infrastructure, as well as offering opportunities for SMEs.