The Resource Dilemma Continues in Central Asia

After the fall of the Soviet Union, the vast energy and mineral resources located throughout Central Asia were released from Communist control and sold-off by the state. In Russia and Ukraine in particular, wealthy individuals with political contacts in the new Yeltsin regime acquired huge stakes in the oil, gas and heavy metals industries. These ‘oligarchs’ took advantage of political favouritism to build the foundations of what would become some of the world’s largest multinational companies.

In Central Asia, where resource extraction and mining operations were less well-developed in the Soviet era, the new-found independence of Kazakhstan, Turkmenistan, Kyrgyzstan, Uzbekistan, Tajikistan and Mongolia brought unprecedented opportunities for foreign investment.

At the same time, these opportunities posed a huge dilemma for fledgling governments. Should they nationalise all resource extraction operations to secure maximum profit for the state and its people? Or should they encourage foreign investment in the hope of using outsider expertise to increase extraction yields, whilst provoking a favourable technology transfer to their country? This dilemma has recently come to a head in Kyrgyzstan, with fierce protests demanding the nationalisation of the Canadian-run Kumtor gold mine in the Tian Shan mountains. Parliamentary protests have focused on the supposed safety flaws at the mine, suggesting that nationalising the mining operation would improve safety standards and protect the environment from toxic spills. The real reason behind the protests, however, is likely to be the same one just outlined. The nationalist opposition (which counts many poor and unemployed workers amongst its ranks) wants to see a greater percentage of the profits at the gold mine go to the people of Kyrgyzstan. They argue that foreign investment, whilst substantial, only benefits the elite few and that profits are not distributed fairly.

The Kumtor mine has been the source of recent protests

Similar scenarios have been seen in Kazakhstan, which has opened up its oil and metal industries to significant foreign investment. In return, the government has received massive revenues which it has spent on lavish architectural improvements to the capital Astana whilst at the same time enabling the emergence of a wealthy class of 21st century business tycoons. This in turn has attracted investment from other multinationals such as Siemens and Philip Morris, keen to cash in on a developing class with disposable income. Additionally, high quality educational institutions and technological schools have been established through support from foreign investors. The question is, does everyone have equal access to the benefits of opening up the economy to foreign investment?

A similar situation exists in Mongolia where businessmen close to the political elite have benefited from brokering resource extraction contracts with Chinese companies, whilst workers suffer back-breaking work for little compensation. A further problem of foreign investment is that outsiders can attain a disproportionate amount of control over indigenous resources and thus political control, something Mongolia has experienced with regards to both China and Russia.

Mongolian miners experience basic living conditions whilst the fruits of their labour end up in Chinese hands

A contrary approach has been taken in Turkmenistan where, under former charismatic dictator Saparmurat Niyazov, all heavy industries, mining and energy ventures remained under state control in a system similar to that under Soviet rule. Possessing vast oil resources, Turkmenistan could benefit from retaining substantial amounts of extracted materials because of state control. In addition, the distribution of revenue from extraction was in theory fairer than in Kazakhstan, for instance. However, because Turkmenistan does not possess the technological or scientific expertise of large, multinational corporations, it cannot maximise its resource potential. Nor has it attained many of the incentives of allowing foreign companies in, such as generous grants for infrastructural development, transfer of technology and commercial deals. Niyazov’s successors are finally questioning the former ruler’s approach.

As with any profit-making venture, there will be winners and losers. The difficulty is striking a balance between indigenous control and foreign investment, one which will incorporate the Central Asian states into the global economy with all the perks that brings, whilst simultaneously allowing them to maintain control over their own destiny. As of yet, that balance has not been found and until it is either domestic workers or foreign businesses will continue to protest.

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Author: Stefan Lang

An interested observer of current affairs, researcher and writer

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