Rentierism, Dependency and Sovereignty in Central Asia

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In rentier states, state investment funds often are disproportionately directed towards the provision of services and infrastructure to those areas of the country which are predominantly populated by the ruler’s tribe. Already in 1970, H. Mahdvy, who first advanced the rentier-state concept, warned that oil states create an impression of prosperity and growth whereas in reality ‘the mass of the population may remain in a backward state and the most important factors for long-run growth may receive little or not attention at all’ (1970: 437). In Turkmenistan by the end of the 1990s the heavily subsidized agriculture sector still employed about half of the economically active population. Students above grade 5 were forced to harvest cotton and the number of students in higher education ‘fell from 40,000 in 1991 to less than 10,000 by 2004’ (Pomfret 2006: 97-99; see also: Lewis 2008: 80-81). An argument could be made that the quasi- Sultanistic Turkmen regime (Cummings and Ochs 2002; Chelabi and Linz 1998) is pursuing an active policy of de-diversification of its economy reminiscent of the politics of Mobutu in Zaire – also a rentier state - in the 1970s and 1980s which has had tragic long term consequences for the country (Young and Turner 1985; Dunning 2005). Finally, the Turkmen regime has been hostile to all forms of regional co-operation (Oloctt 2005) pursuing a policy of virtual isolation from the outside word. Again the rentier effect largely explains why that is the case. Historically, key energy-rich-states in the Middle East – Saudi Arabia or Kuwait – had been also hostile to regional co-operation. In the context of the Middle Eastern states it resulted in the fiercely negative attitude of Saudi Arabia and the Gulf states to the idea of Pan-Arabism. The issue of artificially drawn colonial border lines does not interest those elites whose states have been ‘blessed’ with petro-dollars. Hence, the movements which strongly rely on the symbols which emphasize the unity of all Arabs have been most unwelcome in the oilrich states. 1 Instead, rulers strongly support the movements which use Islamic symbolism. Nazih Ayubi asserts that an important function of what he calls petro-Islam, which stresses an interpretation of religion that is both excessively ritualistic in style and conservative in socioeconomic content, ‘is to keep the oil wealth away from other Arabs’ (2001: 233). Kazakhstan Resources-based economies that Turkmen and Uzbek rulers inherited from the Soviet Union, coupled with an autocratic regime and a lack of human capital to diversify their economies, made the turn towards rentierism somewhat inevitable. Kazakhstan, which today also closely resembles a rentier economy, started its transformation towards rentierism from a very different point when compared to its regional counterparts. The disintegration of the Soviet Union hit Kazakhstan, a middle income country in the beginning of the 1990s, incomparably harder than its southern neighbours since the country’s entire industrial structure was inseparably intertwined with that of Russia. In response to the crisis, the Kazakh regime decided to privatise huge, collapsing enterprises (to a very mixed effect) and itself turned its attention to oil and gas. The oil and gas sectors were largely underdeveloped during the Soviet era but had a capacity to attract foreign oil companies and much needed FDIs, which they did. The increase in oil prices in the 2000s strengthened the Kazakh dependency on resources and led the regime to largely abandon other sectors of the economy. By the end of the 2000’s, the turn towards rentierism was completed. As discussed in the previous section the relative economic success of Uzbekistan and Turkmenistan in the beginning of the 1990s can be largely explained by the interests of the outside world in the commodities they had on sale. Kazakhstan, despite its overwhelming richness in the natural resource, initially found itself on the other end of the equation. This was largely due to three reasons a) remote location of many of the deposits, b) inadequate or non-existing transport links to the outside markets and c) shifting interests of the global mining industry which in the beginning of the 1990s chose to turn its attention to South American deposits and not the post- Soviet once (Bridge 2004). 1 Other states such as Syria or Libya, which do not have large oil revenues at their disposal, have tried to inspire loyalty among their people through non-state ideologies, i.e. Pan-Arabism. Copyright PSA 2011 8
Leading on, in the Soviet Union the development of the republic’s extractive industries followed an enclave type of pattern which mirrored the experience of colonial Africa or nineteen century South America. Thus, development was regionally concentrated but little, if any, investment in ancillary industries. The large extractive enterprises were closely linked to enterprises in other part of the USSR or ‘imperial’ core. It should be added that the same was true for Kazakhstan’s industrial economy which mainly concentrated in primary sectors like ferrous and nonferrous metals, fuels, electricity generation, metallurgy and machine building, and chemical. The industrial economy was build around ‘one-company towns’ in which production concentrated on intermediate products. Those products had to be sent to factories in Russia for further processing and manufacturing (Peck 2004: 60-62; Pomfret 2006: 43; see also Cummings 2000; Olcott 2002). In short, without the Soviet economy there was hardly any Kazakh economy one could speak off. The overwhelming economic problem that Kazakhstan faced in the beginning of the 1990s was exacerbated by two additional factors. The enterprises within the border of the newly independent Kazakhstan were old and suffered from chronic underinvestment during the late Soviet era. Thus, the enterprises needed huge funds in order to become commercially attractive. Furthermore, the Russian, German and Slavic managerial and engineering classes which worked on major enterprises in the north of country began migrating back to Russian and other republics. In the first decade of independence almost two million people left Kazakhstan (Sinnott 2003; Dave 2004). The response of the Kazakh government to the mounting economical crises, which followed the collapse and disintegration of the Soviet economy, was to privatise existing enterprises in the mid-1990s. The Kazakh ruling elite hoped that through privatisation it would be able to shift responsibility from itself to the private sector for running the enterprises and maintaining social peace in ‘one company towns’. Yet, the proposed privatisation did not generate much interest among multinationals. Instead the country’s key assets were bought at a very low price by little known outside companies whose real identity was disguised by company’s off-shore registration. In the years to come most of them failed to meet their commercial or social obligations and instead engaged in widespread asset striping (Ostrowski 2010). The privatisation, the so-called ‘sale of the century’, deepened the existing economic and social crises in the country (Nazpary 2002) and fully opened the doors to crony capitalism which was accompanied by rampant corruption (Cummings 2002, 2003; Furman 2005; Murphy 2006; Dave 2007). As a result, the Kazakh political system throughout the 1990s began retreating to a pre-Soviet logic of zhuz (horde), tribes and clans (Schatz 2004). In the face of collapsing economy and growing social problems the Kazakh ruling elite turned its full attention to oil and gas which were the only two sectors able to attract the interest of major international companies from the beginning of the 1990s. In the post-OPEC world, Kazakhstan, where production on major oil fields began only in the 1980s and which had an enormous potential for the future, presented foreign oil companies with a unique opportunit they were not going to miss. The regime on its part created institutional structures – an early version of the National Oil Company and oil laws - which best suited the interests of the outside companies. The regime further allowed companies to entrench their position in post-Soviet Kazakhstan by signing a whole host of Production Sharing Agreements which clearly favoured outside companies (Ostrowski 2010). The bond forged in the 1990s between oil companies and the Kazakh regimes, to some extent, mirrors the relationships between Saudi Arabia and the western oil companies in the 1950s and 60s (Vitalis 2007; Yessenova 2007). The gamble which the Kazakh elites took in the in the first decade of independence to stake their future and that of the country at large solely on oil paid off in 2000 when a consortium of western companies discover a Kashagan oilfield, which is the largest oil find in the past 30 years. Accidentally, the discovery was followed by a rapid rise of oil prices on the international commodity markets throughout the 2000s finally bringing much needed revenues (Pomfret 2005: 867-868). This in turn allowed the regime to increase social spending as well as the all important public sector salaries (Ostrowski 2009: 348-351). What is more the increase in the revenues also 9 Copyright PSA 2011
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Rentierism, Dependency and Sovereignty in Central Asia

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