S&P: Commodity price boom offers Central Asia a platform for long-term economic success
08.05.08 09:14
/Standard & Poor's, Frankfurt, May 7, 08/ - Soaring commodity prices are
affording Central Asia a real opportunity to create lasting economic success,
says a report titled "Will Central Asia's Commodity Boom Help Pave The
Way For A New Silk Road?," published yesterday by Standard & Poor's
Ratings Services. It's not all good news, however. The region's leaders need
to consistently improve the quality of the business environment and prepare
their countries for the inevitable transition of leadership.
"Geography has long shaped Central Asia's destiny," said Standard & Poor's
credit analyst Moritz Kraemer. "Far away from the large population centers,
underdevelopment starved the region of the investments it needed to escape
poverty and isolation.
"Now, following the demise of the Soviet Union and the boom in
commodities, Central Asia is in the driver's seat, steering its own future. But
although vast resource endowments are a necessary condition for economic
advancement, they are not sufficient on their own. The real test is to get the
products to the markets."
As the report points out, oil (especially in Kazakhstan) and gas
(predominantly in Turkmenistan and Uzbekistan) are the most valuable
natural assets in this vast region. Overall, Central Asia's hydrocarbons
deposits are modest by global standards, amounting to just over 3% of the
world's proved reserves for both oil and natural gas. The region's population,
however, is even smaller in relative terms (1% of world population), which
suggests that sustained high energy prices should provide an excellent
springboard to prosperity. Kyrgyzstan, where gold is a dominant export, and
Tajikistan (cotton, minerals, and aluminum), have drawn the short straws.
Having missed out on the hydrocarbons boom, they remain relative
economic backwaters, despite the dynamism of recent years.
Growth in the region is robust, averaging between 5% per year in Kyrgyzstan
and almost 10% per year in Kazakhstan over the past five years. Improved
terms of trade lie at the heart of this growth, generating domestic demand
among consumers and business communities. Investment has reached
unprecedented levels as politicians rush to transform formerly backward
economies, abetted by foreign direct investment and knowledge transfer
through international oil and gas companies eager to get a foot in the door.
If this all sounds too good to be true, that's because it is. Despite the recent
boom, policymakers face tough conditions that will endure for years to come.
Standard & Poor's believes it will take more than the good luck of rising
export prices to firmly root sustainable growth and development in what
remains an environment characterized by weak institutions, sub-par
governance structures, social problems, a worsening income distribution,
and a land-locked location far from the major markets for Central Asia's
exports. In the near term, the largest threats to stability and prosperity arise
from the consequences of irrational exuberance during the resource boom.
And they are most evident in Kazakhstan, where rampant credit growth and
an unprecedented construction bonanza have created serious economic
imbalances.
This article will appear in a special issue of Standard & Poor's CreditWeek
devoted to Central Asia. The issue coincides with the annual meeting of the
European Bank For Reconstruction And Development in Kiev on May 18-19.
Other articles in the issue will cover Kazakhstan's metals and mining and
banking sectors, plus the republic's planned hydrocarbons investments, and
economic development in Turkmenistan, Uzbekistan, Kyrgyzstan, and
Tajikistan. All of the articles in this issue of CreditWeek, the global
authority on credit quality, will also be available in a special report on
RatingsDirect, the real-time Web-based source for Standard & Poor's ratings,
research, and risk analysis.
For detailed information please contact to:
Moritz Kraemer, Frankfurt (49) 69-33-99-9249;
moritz_kraemer@standardandpoors.com
Ben Faulks, London (44) 20-7176-7108;
ben_faulks@standardandpoors.com
Franklin Gill, London (44) 20-7176-7129;
frank_gill@standardandpoors.com
[2008-05-08]