Will Kazakhstan and Uzbekistan’s Reforms Be Transformative?
The leaders of both countries have recently put forward plans to transform their states. But are these proposed changes really that transformative?
Recently, among Central Asian countries, it has become a trend to create a “new Stan” after the countries’ so-called founding fathers. For instance, before starting his second term in 2021, President Shavkat Mirziyoyev of Uzbekistan announced his “New Uzbekistan Strategy” to considerably change the regime and political structure of the country after the first president of the country, Islam Karimov. The administration of Kazakh president Kassym-Jomart Tokayev adopted a similar approach in 2022. In response to political unrest that took place in January of that year, Tokayev proposed a new set of full-scale reforms in the country. In his address to the nation on March 16, he stressed that it is not the following “abstract ideas” but a vision to transform the country into a “New Kazakhstan.” Are these reforms capable of creating new versions of these countries? If the answer is yes, how do these leaders transform their visions into reality?
Upon close examination of these proposed reforms, it could be argued that they represent an approach to modernizing society and state primarily derived from the early Russian economic policy of Russian president Vladimir Putin, in which Moscow focused on the simplification of opening up businesses, tax reforms, reduced government intervention in markets, etc. However, the true genesis of these reform packages is traced back to the Washington Consensus policy prescriptions developed by the IMF, World Bank, and the U.S. Department of the Treasury following the end of the Cold War. By modifying certain aspects of these prescriptions, the current economic reforms of both countries are consistent with the SLIP (Stabilization, Liberalization, Institution Building, and Privatization) Agenda reform packages.
Kazakhstan’s model closely mirrors that of Uzbekistan, with an emphasis on achieving economic growth through inflows of foreign capital and developing small and medium-sized businesses in the country, while also focusing on improving living conditions. In other words, the intention is to create an economy that works for people and a government that is “fair” and “just.” However, this may appear to be an ambitious goal for Kazakhstan, as it is not the first reform effort by Tokayev. A “New Kazakhstan” is a practical response to previous mismanagement of governmental affairs and the unsettled socio-economic environment of the country; Tokayev understands the realities of his country after “Bloody January.” Symbolically, a referendum and constitutional amendments signify that he is determined in his vision for transformation.
Who Follows What? Reform Packages of Uzbekistan and Kazakhstan
Both Uzbekistan and Kazakhstan possess nearly identical institutional and economic models and have passed similar reform efforts addressing the judiciary, state government, human rights, and business development, according to Aziza Umarova, a Research Fellow at the Davis Center for Russian and Eurasian Studies.
In his first year as president, Mirziyoyev proclaimed his state program for 2017, “A Year of Dialogue with People and Human Interests,” which would involve citizens in policymaking by hearing their voices on pressing issues of the country. By the same token, as soon as he took office, Tokayev established the National Council of Public Trust and proposed a model of a “hearing state.” Each initiative would play an intermediary role between the government and society by promoting dialogue among the public, political parties, and civil society.
But the idea of building a “new” nation began in 2021, when Mirziyoyev kicked off his presidential campaign with the notion of establishing “New Uzbekistan.” Soon after winning his second term, he introduced the “Development Strategy of New Uzbekistan for 2022–2026.” This five-year program is a continuation of his first presidential program, the Strategy of Actions for 2017-–2021. As for Tokayev and Kazakhstan, in his address to the nation, he outlined five areas of reforms for “New” Kazakhstan: economic policy, the development of the real estate sector, strategic investment in the country’s future, resetting public administration, and improving law and order.
After carefully Tokayev’s proposals, it is evident that it takes significant attributes from the “Development Strategy” and “Strategy of Actions for Uzbekistan” developed by Mirziyoyev. This is not surprising, as both countries’ economic development model heavily depends on fossil fuel energy resources, agriculture, foreign direct investment, the development of small and medium-sized enterprises, and the digitalization of the economy.
Kazakhstan’s Economic Reforms: To What Extent Does It Differ?
Kazakhstan’s new economic reforms are the first steps to modernizing the country’s economy by relying on the instruments of a free market, including antimonopoly policies, comprehensive tax reforms, and supporting businesses by creating favorable conditions. Tokayev aims to build an economy in which responsibilities are shared between businesses and government to address complex social challenges. Businesses, in turn, will benefit from these reforms, such as via legislative change in entrepreneurial and business activities and elimination of administrative burdens. Through this process, the government intends to involve businesses in social infrastructure, building facilities to reduce excessive shortages. It is also clear that the new economic policy functions on the basis of market mechanisms by adding a number of social elements, such as honest taxation, and invoking social responsibility. To add to this, a “Council of Domestic Entrepreneurs” will be founded to support socio-economic reforms. Tokayev himself promoted the three principal elements of the new economic policy: the inviolability of private property, investment climate, and fair competition.
Any economic reform in a market economy requires legal and institutional support and, more importantly, the existence of political transparency and a stable political system in a country. The government should take into consideration institution-building and legal reforms to increase its credibility. In the early 1990s, similar reforms were introduced to reduce public sector engagement in the economy. However, there are a plethora of quasi-public institutions in Kazakhstan—about 6,500 organizations are operating in this sector. Being cognizant of these problems, the country’s prime minister asserted an urgent need to reform the legal frameworks surrounding taxation, budget, and business management. Support of domestic businesses requires a vast amount of credit resources, which is currently a problem. Reforms in the banking system are necessary to finance small and medium-sized enterprises, though most banks in the country have accumulated excess liquidity over the past years. Unfortunately, this excess amount has not been effectively injected into the economy—it instead actually suffers from about $42 billion in underfunding for small and medium businesses. To attract foreign funds, political stability will be necessary; already European experts have stressed the need to ensure stability in the country after last January’s events in order to rebuild investors’ trust and propagate the realization of these reforms.
The most notable aspect of these reforms is the pivotal role of trade. Step by step, the country’s new economic policy tries to modernize the trade policy through collaborative work with foreign countries like China, India, the United Arab Emirates, and so on via appointing special advisors on trade from those countries. Certain features of these policies, such as liberalization and continuation of the privatization process, could be completed quickly. However, both countries have to overcome their classical conundrum—“moving from exhortation to implementation” by providing a solid promotion for the effective functioning of market institutions. Once in 2019, Tokayev stated he would not allow the recurrence of unfortunate events like the massive arms depot blast in Arys. Unfortunately, it was followed by a second military warehouse explosion in Taraz (2021) and Dungan-Kazakh ethnic clashes (2020), not to mention Bloody January last year.
Given the similar growth models of both countries, Kazakhstan should strengthen its socio-economic and political relations with Uzbekistan in the future in order to avoid repeating the mistakes made by its “twin.” For instance, due to the dramatic increase in lending in Uzbekistan since 2016, the banking sector of the Uzbek economy has been affected by excessive amounts of non-performing loans, and the impact of lending growth has risked asset-quality trends in the banking sector. Additionally, through comprehensive economic reforms implemented by the Uzbek government, the country has managed to develop its economy, with an average annual growth of 5.2 percent between 2016 and 2021, while Kazakhstan only has half of that, standing at 2.6 percent. Having nearly similar socio-economic problems, the Uzbek economic growth model under Mirziyoyev could improve by adopting the best practices of its neighbor.
Furthermore, due to geographical proximity, trade and economic interaction would mutually benefit both countries—strengthening cooperation in energy, logistics, and environmental protection. More importantly, there should be no competition between Kazakhstan and Uzbekistan, but rather cooperation for growth and development, and supporting each other in solving regional conflicts and “new age” issues such as environment, cybercrime, etc. Considering their mutual energy sector dependence on Russia, both states should bring about structural reform in their energy supply management and green energy sources through bilateral cooperation. Recently, both countries took down Moscow’s offer of the foundation of a trilateral gas union, which will benefit them in the long run as it significantly reduces Moscow’s influence in the region.
As the future economic condition of the region is uncertain, both countries should be wary of their relationship with Russia, whether social or economic, as to avoid being imposed sanctions on by the West, as their relations could be regarded as giving assistance as third parties in evading sanctions. It is crucial for both Kazakhstan and Uzbekistan to be aware of the potential risks and benefits of their growing economic connections with Russia.