Do Central Asian States Suffer From the Resource Curse?

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Central Asia is a unique region in terms of natural resources. Several countries, including Kazakhstan, have the abundance of oil, natural gas, and several metals. However, the huge potential is almost undeveloped on a commercial scale, leading to the emergence of the so-called “resource curse.” This paper is aimed at determining the causes of the phenomenon, as well as exploring the potential solutions to the problem and outlining future economic development.

The resource curse is the adverse economic condition that arises from natural resource abundance without proper development of its potential. It usually has the social, economic and political background as its reasons. Termed by Karl as “paradox of plenty”, the process starts with the steep rise of the income in the relatively undeveloped state, which results in the unprecedented power granted to its government (1997).

This power is often used ineffectively, which, coupled with faulty taxation, leads to massive adverse effects. After Kazakhstan has left the Soviet Union and discovered its vast oil reserve shortly afterward, it was expected to make use of its natural resources abundance to promote economic growth in Central Asia. When the discovery was made, there was indeed a rapid increase in the Kazakhstan’s economy, but since the economy is only driven by the natural resources, the growth was subsided with an average GDP growth rate estimate of 10.3 percent annually from 2000 to 2006 (Collier & Goderis 2008).

Kazakhstan is the most interesting country when it comes to analysis of the paradox of plenty because the discrepancy between the resource potential and the development of the business sector is the biggest among the countries of Central Asia (Franke, Gawrich, & Alakbarov 2009).

The Central Asian countries, including Kazakhstan, have failed to diversify their economy to other sectors. With this resource curse, several institutions are mismanaged or affected by the resource curse. These include education, individual investment, social services, currency inflation, and hampered financial growth. Resource curse in the key reason the Central Asian countries have been unable to sustain the continuous growth rate (Luong & Weinthal 2001).

The paradox is often ascribed to the Dutch disease in the central Asian countries, a term that characterizes the situation where a country suffers a decrease in one of the branches of the economy while trying to revitalize or sustain other branches. Karl famously changes this notion by pointing to the political reasons as opposed to focusing on the economy (1997).

This view is supported by other experts, who name the involvement of the state authorities among the primary reasons. Nurmakov specifically points at the almost overwhelming level of government control over the oil industry in Kazakhstan as the key factor of the phenomenon (2010). The excessive control results in two drawbacks. First, the technological, managerial, and investment capabilities of the controlling party do not allow the proper development of the sector. Second, it gives way to authoritarianism, and, as a result, to corruption (International Crisis Group 2007).

Currently, the reserves are exploited by corrupt leaders to fund their needs. Such state of events has led to ethnic wars within the countries and, in some cases, power struggle which sometimes results in the death of civilians. Despite all this the economy of Kazakhstan remains under the control of the government elites and the people who support the government. This is due to the causal mechanism known as the repression effect, which correlates the increase in the government security with the funding provided by the resource abundance (Ross 2001). Finally, the taxation effect, resulting from the lowering of taxes while at the same time raising the state expenditures, cannot be ignored (Gel’man & Marganiya 2010).

The resource curse may possibly lead to negative outcomes in both the social and economic trends in these countries. Kazakhstan has a greater dependency on oil and natural gas but a reduced tendency to affect growth from the benefits of these resources. Hence, its economy has seized to grow and became less competitive. The most obvious drawback is that of the economic sector, as the decline of predictability leads to the compromised security of supply and demand (Nurmakov 2010). The energy security is also under impact, as the majority of the Asian countries rely on oil and gas as the primary source of energy (Collier & Goderis 2008).

Kazakhstan’s economy does not attract outside investments despite the obvious potential for the foreign investors. This underdevelopment of the resource management results in the low cost of labor of the people involved and other social insecurities. Finally, the political scene remains insecure: Kazakhstan has limited room to change these outcomes since those in this business mainly control the social, economic and political environment. The corruption of government further hampers the process (International Crisis Group 2007).

There are ways to overcome the resource curse in the central Asian countries other than a reduction in the exploitation of these resources. According to Martin Raiser, there must be policies that are put in place to turn the natural resource abundance into a blessing rather than a curse (2006). These plans are faced with political difficulties when it comes to their implementation. The major fuel resources that are found in Kazakhstan include oil, natural gas, and coal.

There have been traces of other resources in lesser quantities, such as chromium, lead, tungsten, arsenic, beryllium, gold, phosphorus, silver, copper, and zinc. The policies should be aimed at reducing the amount of foreign debt that is borrowed by the country, controlling inflation and government expenditure, and increasing foreign investments. The economic development can be started by providing good infrastructure in the field of transportation and communication networks, by maintaining and building roads and railway systems. Another important point is investing in the education system to provide skills and learning materials for the future generation to secure the skilled workforce and management (Brunnschweiler & Bulte 2008).

Kazakhstan should invest in other sectors such as farming and education as the lack of diversification is among the primary reasons of the curse (Pomfret 2005). The poverty level in these countries is expected to increase with time if no measures are taken. Finally, Kazakhstan should prioritize the political reforms besides the economic growth. Although economic growth has been sustained by the development of authoritative regimes in the countries, there should be a subsequent growth in the economies of these countries once the authoritative government is democratized.

In conclusion, two major directions for further action can be outlined. First, the correct economic measures need to be applied by the state to establish economic development and secure the financial stability. Second, a sustainable political system has to be established in Kazakhstan to maintain the welfare of the citizens and provide a favorable climate for economic growth and political as well as social security.

Reference List

Asian Development Bank 2010, Central Asia Atlas of Natural Resources, Asian Development Bank, Manila.

Brunnschweiler, C N & Bulte, E 2008, ‘The resource curse revisited and revised: A tale of paradoxes and red herrings’, Journal of Environmental Economics and Management, vol. 55, no. 3, pp. 248-264.

Collier, P & Goderis, B 2008, Commodity prices, growth, and the natural resource curse: Reconciling a conundrum. Web.

Franke, A, Gawrich, A, & Alakbarov, G 2009, ‘Kazakhstan and Azerbaijan as post- soviet rentier states: Resource incomes and autocracy as a double ‘curse’ in post- soviet regimes’, Europe-Asia Studies, vol. 61, no. 1, pp. 109–140.

International Crisis Group 2007, Central Asia’s energy risks, Asia report No. 133. Web.

Gel’man, V & Marganiya, O 2010, Resource Curse and Post-Soviet Eurasia: Oil, Gas, and Modernization, Lexington Books, New York.

Karl, T L 1997, The Paradox of Plenty: Oil Booms and Petro-States, University of California Press, Berkley.

Luong, P & Weinthal, E 2001, ‘Prelude to resource curse’, Comparative Political Studies, vol. 34, no. 4, pp. 367-399.

Nurmakov, A 2010, ‘Resource nationalism in Kazakhstan’s petroleum sector’, in I Overland, H Kjaernet, & A Kendall-Taylor (eds), Caspian Energy Politics: Azerbaijan, Kazakhstan and Turkmenistan, Routledge, New York, pp. 20-37.

Pomfret, R 2005, ‘Kazakhstan’s economy since independence: does the oil boom offer a second chance for sustainable development?’, Europe-Asia Studies, vol. 57, no. 6, pp. 859-876.

Raiser, M T, Lambert, C, & Majerowicz, S 2015, Oil to cash: fighting the resource curse through cash transfers. Web.

Ross, M 2001, ‘Does oil hinder democracy?’, World Politics, vol. 53, no. 3, pp. 325-361.

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Do Central Asian States Suffer From the Resource Curse?

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