The West’s greater engagement with Central Asia will have a limited impact in the near term, hindered by structural challenges and the dominance of major powers in the region
Several noteworthy initiatives aimed at bolstering the presence of Western companies in Central Asia (CA) are on the horizon, following meetings between CA leaders and their Western counterparts. These include the preparation for the launch of a C5+1 business platform to increase the US private sector’s presence and a C5+1 Critical Minerals dialogue, both offering new B2B and B2G opportunities due to the region’s substantial mineral reserves. Additionally, the upcoming USAID-led ministerial talks that will be held in a C5+1 format in October will shed light on future cooperation, particularly related to inclusive and sustainable development.
Support for regional connectivity projects aimed at bypassing Russia remains a key agenda item. Germany stands out as a proactive partner in energy transition and in the development of the Middle Corridor, a significant interconnectivity project connecting East to West while bypassing Russia. Notably, the Swedish-German Svevind Energy Group’s recent US$ 50 billion investment deal in a wind and solar power plant in Kazakhstan signals upcoming opportunities in renewable energy.
Businesses specializing in green energy, critical minerals, port, and railway infrastructure should expect growing prospects, particularly in Kazakhstan and Uzbekistan in the coming years. However, as the region remains eager to preserve its close ties with Russia due to strong economic dependence, multinationals should continue to work closely with their legal teams to limit the business exposure to additional sanctions tightening.
- On September 19, President Joe Biden hosted the first Central Asia summit on the sidelines of the UNGA in New York, where discussions spanned various areas, including counterterrorism, border security, critical minerals, energy transition, and regional interconnectivity.
- German Chancellor Olaf Scholz convened the first “Germany-Central Asia” summit on September 29, with a primary focus on green energy, interconnectivity, and environmental protection.
- On October 6, the leaders of Kazakhstan and Uzbekistan met with Russian President Vladimir Putin to kick off Russian gas exports to Uzbekistan through Kazakhstan, marking the first-ever flow of Russian gas to Central Asia.
- In a strategic balancing move, last week, Uzbekistan and Russia also signed 10 agreements, including the opening of a Russian consulate in Samarkand, aligning with the increasing number of Russians in Uzbekistan, and fostering cooperation in railway transport and infrastructure development. Nonetheless, these developments introduce both potential benefits and risks to the region.
- Uzbek President Shavkat Mirziyoyev confirmed a substantial increase in the share of industrial products in trade with Russia, a trend not observed in previous years, possibly indicating sanctions evasion.
- The CIS leaders’ summit in Bishkek, Kyrgyz Republic on October 12 provided Putin with another opportunity for broader discussions with the Five Stan countries following their recent meetings with Western leaders. This was Putin’s first foreign visit following the ICC arrest order.
While the inaugural C5+1 summits between Central Asian nations and Western leaders highlighted an increasing interest in the region, it did not produce specific investment and business deals with an immediate impact on multinationals. Instead, the summits served as a general reminder to Central Asian countries that the West is eager to expand cooperation and open to greater engagement, emphasizing the need for more proactive steps from the region to accelerate investments.
These high-level meetings with the Western leaders confirm a growing interest in Central Asia. This region holds significance for the US national security due to its proximity to Afghanistan but also offers substantial economic opportunities. Sizable, critical mineral potential in the region, Kazakhstan’s energy exports, Uzbekistan’s ambitious liberalization plans, and concerns about parallel imports through the five Central Asian countries make the region noteworthy for Western observers. However, anticipating a major change in Central Asia’s foreign and domestic policies as a result of increased Western engagement would be naïve. Countering Russia’s influence in the region will remain a formidable challenge in the foreseeable future. Nonetheless, there is an opportunity for the West to establish itself as a reliable partner in areas of mutual interest, especially while Russia is preoccupied with the war in Ukraine and China seeks to expand its presence in the region.
While US companies have invested over US$ 31 billion in Central Asia so far, these countries actively seek more investments, as Russia’s role as a security guarantor and its investments wane. However, large-scale investment decisions will depend on the willingness of Central Asian governments to increase their respective markets’ attractiveness to Western companies. Issues such as endemic corruption, limited judicial independence, a significant state footprint, and slow bureaucracy will likely continue to restrict Western interest in the region for the foreseeable future.
As the US aims to reduce reliance on China, which dominates global critical mineral supply chains, Central Asia emerges as a potential new supplier due to its substantial reserves of critical minerals such as bauxite, uranium, copper, iron ore, chromite, manganese, titanium, and zinc. China already has a large influence in the mining sectors of Tajikistan and Kyrgyzstan, while Kazakhstan and Uzbekistan appear more open to Western FDI in this sector.
Regional interconnectivity projects aimed at reducing dependence on Russia will remain on the radar of the West, as these projects could also enhance Europe’s energy security by diversifying supply routes. Last year, Kazakhstan bought two oil tankers to transport its oil to Europe via the Caspian Sea, bypassing Russia. However, this accounts for only 2% of Kazakh exports, and Kazakhstan’s reliance on Russian energy infrastructure for oil exports is expected to remain high in the medium term. Yet, it still highlights Kazakhstan’s own geopolitical and economic interests in pursuing new alliances and trade relationships, beyond the ones with the Kremlin.
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