The history of economic growth in Central Asia and Caucasus region dates to the fall of the ruling communist regime and the disintegration of the Soviet Union that open the doors to the world with a bid to exploit the underutilized resources. Relevant reports show a remarkable improvement in the Region’s economy, with Kazakhstan and Georgia in the Caucasus, recording satisfactory improvements. Despite the positive economic outcomes, the Central Asian countries and the Caucasus face numerous financial challenges that drag the development of these nations. Transition to a free economy is still a challenge to the countries like Tajikistan, Turkmenistan, Kyrgyzstan, and Uzbekistan.
When the Soviet Union disintegrated, these nations plugged into recession which made it difficult for them to adapt to the fast pace of economic growth (Salgado, 2017). According to the research done by the World Bank on the financial situation of these countries, it indicated that they had registered economic growth; however, they are at a low pace. Among the Central Asian countries, Kazakhstan has registered positive growth due to its reforms in the economic sector and the availability of natural resources in the vast nation. According to the World Bank report, the country had a nominal GDP of $218 billion in 2016, and it was set for an improvement in 2017 (Rowe, 2017). This is attributed to the policies that have been put in place including the Nurly Zhol, commonly referred to as the Path to the Future, which advocated for massive government involvement in the improvement of infrastructure (Rowe, 2017). The approval of the new privatization plan for 2016 – 2020 facilitated the growth whereby many public firms were privatized. This economic growth was further facilitated by the county’s implementation of financial strategies that made it inviting for investors to invest in the country.
Other nations, for example, Turkmenistan still uses the old economic policies, which do not encourage a vibrant economy since the government owns most of the investments. Uzbekistan, on the other hand, has only opened the ownership of small business entities to private firms while the substantial investments remain in the hands of the government. Afghanistan is another country which is known to have a closed economy, which is preventing the growth of the economy while at the same time political instability is also scaring away investors, which leads this nation to drag behind. Insecurity in Afghanistan is to blame for the slow economic growth in the country since it has led to increased poverty and withdrawal of private investors (Salgado, 2017). Inflation in the country increased by 4.5% in December 2016 to 5.1 by July 2017 due to the rise in food prices and other essential commodities (Rowe, 2017). Due to the sluggish economic growth and the effects of insecurity, the country has registered an increased poverty index, which stood at 39.
1% in 2016 (Horton, 2016). Mongolia, on the other hand, has made some reforms in its economic structure and has built private sector based economy since the country shifted into the market-driven economy in 1990. Today, the government is working to accelerate its transition to a competitive economy however, the country’s economic policies still require crucial reforms. Policies towards foreign investments are still opaque that leads to uncertainty in making investment decisions in the country. Additional draw backs are a high level of corruption and weak rule of law.
Looking to the Caucasus region, a leading country is Georgia, which has succeeded in registering economic growth after gaining its independence from the Soviet Union. European Bank for Reconstruction and Development forecasted Georgia’s economic growth to be 4.5% in 2017 and 2018. Economic growth forecast is increased by 0.6 percentage point for 2017 and by 0.
3 percentage points for 2018. (EBRD Report 2017)The World Bank attributes the increase in economic growth to the rise in the investment and primary consumption in the country due to the improved investment policies. According to the international financial institutions, Georgia will have one of the highest economic growth rates among the countries of Eastern and Central Europe and Central Asia. The country has adopted economic policies that have helped spark growth in the country. Georgia has become known to be a sufficiently liberal economy, attracting foreign investors who in turn will foster economic growth by making the country friendly to doing business. Majority of Georgia’s reforms are oriented on the development of free, open and transparent, private-sector driven market economy.
Georgia has become the regional leader where the phrase “ease of doing” business is realistic and accurately reflects the business climate in Georgia. Additionally, Georgia has been prosperous in fighting corruption and promoting economic growth and welcoming foreign investors. The other countries are faced with the most significant challenge of corruption and bureaucracy and thus there is a need for these nations to develop policies that will help in solving the issues.
A report by Transparency International indicated that Georgia registered a score of 57 in 2016 which is an improvement compared to the previous years. The other countries in the region registered lower entries with Afghanistan having a score of 15, Uzbekistan at 21, Kazakhstan 30, Mongolia 29, Armenia 33 and Azerbaijan was rated at 30. These rate of corruption indicates the rot that is in the economic sector and hence the need for reforms if the individual countries need to realize economic growth. Alongside recognitions as the top reformer in the world, Georgia is the leader in the wider region in terms of fighting with corruption. Corruption index is lowest in the region.