LOW GRADES FOR PETRO-STATES IN THE FORMER SOVIET UNION

Journal of Third World Studies, Spring 2007 by Crandall, Maureen S

Over fifteen years have passed since the demise of the Soviet Union and the subsequent independence of the former Soviet republics in the South Caucasus and Central Asia. It is time to take stock of what advances these independent countries have or have not made. This report card assesses a number of measures of economic, social and political progress, and we conclude that these countries have made few advances on the road to economic growth, freedom and democracy. In some cases, they have actually retrogressed from their status before independence. In addition, the region is becoming increasingly militarized, which raises the risks of military conflict, both between and within countries. We limit our examination to the oil-and-gas rich Caspian countries of Azerbaijan, Georgia, Kazakhstan, Turkmenistan, and Uzbekistan. We address neither Tajikistan nor Kyrgyzstan, since neither is an oil or gas province, but we include Georgia since it is a key link in energy transport even though it is not rich in energy resources. In our view, Turkmenistan and Uzbekistan have earned failing grades, while the remaining countries are a toss-up for a C or C-. In general these governments - all one-bullet regimes - have brought almost no progress to their countries. The repressive and corrupt leaders have kept their countries impoverished and have avoided economic and social reforms. Hostilities may yet occur between countries, and civil unrest eruot within countries, in the next 7-10 years.

This essay looks at the selected Caucasus and Central Asian countries as a group from a variety of perspectives. We examine six indicators of economic and two indicators of social progress. The first three economic indicators are GDP, GDP per capita, and GDP real growth rates. The fourth is evidence on income distribution, poverty, and population age distribution. The fifth examines data measuring economic freedom. The sixth considers evidence on corruption, a severe and pervasive problem in all these countries. From a social perspective, we look at indicators of human development and human rights. On nearly all counts, the countries of the Caucasus and Central Asia have made almost no progress. We then address the growing militarization in the region and the potential for conflict.

The Size and Trend of Economies

The Caucasus and Central Asian states were the poor relations and the backwater republics of the former Soviet Union, dependent on subsidies from Moscow. They produced raw materials and sent them north to Russia. With independence came the economic shock of having to manage their own economies and build industries, to develop sources of funds domestically rather than from Moscow, and to seek new and expanded trading relationships. GDP

We first compare the countries' macroeconomic progress by examining their GDPs, expressed in purchasing power parity (PPP) terms in U.S. 2000 dollars. This widely-used method employs an exchange rate that accounts for price differences across countries and thereby allows international comparisons of real output. It is a more accurate reflection of living standards than others that do not adjust for exchange rates and price levels. Kazakhstan had the largest GDP at over $93 billion in PPP terms in 2003 (the latest year available for OECD data), while Georgia had the lowest at roughly $12.5 billion in PPP terms, as shown in Figure 1.

These countries' economies suffered after independence, and are only now beginning to exceed their pre-independence GDPs, although Georgia's has stagnated. Uzbekistan experienced the smallest percentage decline, probably due to the fact that before independence its economy was not as heavily integrated into the Soviet economic system as were some of the others. Kazakhstan has the largest economy of the group. Its GDP finally began rising again in 1999, but Azerbaijan is now the fastest growing of the group, largely due to its oil and gas industry.

GDP Per Capita

A second approach is to examine per capita GDP in PPP terms. This measure gives an average of the well being of the citizenry, although it does address income distribution, which is highly skewed. Figure 2 shows Kazakhstan with the highest per capita GDP of $6,300 in 2003, close to 30 percent above its 1992 level. Azerbaijan, however, has yet to equal its 1992 level of $3,400. In contrast, U.S. per capita GDP is approximately $42,000. What is clear is that only in Kazakhstan and Turkmenistan has per capita GDP shown much rise over time (although Turkmenistan's data are believed to be notoriously inaccurate).

GDP Annual Growth Rates

A third measure of macroeconomic robustness is the annual rate of real GDP growth. Economic reforms have come slowly, if at all, and growth has occurred largely as a result of oil and gas development. Table 1 shows the percentage annual growth rate in real GDP through 2005, with forecasts for 2006 and 2007. Economic growth in Kazakhstan and Azerbaijan has been propelled by the hydrocarbon industry since 2000, and the 2003 jump in Georgia's growth is due largely to the construction of the Baku-Tbilisi-Ceyhan oil pipeline. Uzbekistan is the growth laggard now, largely due to its reluctance to liberalize its economy, and Georgia's growth will slow by 2007. Turkmenistan's numbers are questionable and thought to be too high by a factor of two.1