Central Asia, spanning an area from the Caspian Sea in the west to China in the east and from Afghanistan in the south to Russia in the north, is rapidly emerging as a significant economic block. Comprising five post-Soviet states — Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan — this region is distinguished by its rich natural resources and strategic geographic position, as well as its natural beauty and cultural heritage. With a combined population of around 75 million people, Central Asia has emerged as a dynamically developing market that is increasingly attracting global interest.
The transformation unfolding in Central Asia holds both promise and significant challenges for its residents and foreign investors alike. This shift is driven by increasing calls for political reform, the dynamism of a youthful population, and an imperative for sustainable development alongside the pressing need to diversify economic bases.
Structural changes following independence in 1991 set the stage for robust growth from 2000s onward
Following the collapse of the Soviet Union in 1991, Central Asian countries faced the challenge of transitioning from centrally-planned to market-oriented economies. This period was marked by significant economic difficulties across the region including negative GDP growth and hyperinflation, compounded by the complexities of privatization, legal reforms, and both social and political instability. The nations responded with different development strategies aimed at market liberalization, infrastructure improvement, and the utilization of natural resources.
By 2000, Central Asia experienced a noticeable economic resurgence, marking a striking contrast to the conditions in 1991. In that year, Uzbekistan’s GDP growth was at -0.5%, Kyrgyzstan at -7.9%, and Kazakhstan at -11%. A decade later, these countries reported positive growth rates of 4.2%, 5.3%, and 13.5%, respectively. This remarkable turnaround can be attributed to the “low base effect,” where the initially low economic indicators set the stage for significant improvements over time.
The total GDP of Central Asian countries has grown seven times since the beginning of the 2000s. In comparison with the global economic growth rate of +2.6% annually, the Central Asian region grew by an average of 6.2% between 2000 and 2023 according to IMF data.
All Central Asian states are forecasted to outpace the IMF’s projected growth rate for emerging markets and developing economies 2024 which stands at 4.2%; however, actual growth will depend on reforms and foreign investment. Kazakhstan has set the highest growth goal with a five-year target GDP increase to $450 billion, which would require an achievable but challenging 6% annual growth. As illustrated below, Kazakhstan stands out as the economic powerhouse of Central Asia with a GDP almost 1.5 times that of all the other countries combined.
Labor markets: Optimal demographics for growth and innovation
According to United Nations data, approximately 75 million people live in Central Asia, representing 1% of the world’s population. Relative to the global median age, all of Central Asia boasts a young population. A youthful population fuels economic growth by replenishing the workforce, driving innovation, and expanding consumer markets. It supports older demographics through social systems and can significantly boost a country’s economy if coupled with investments in education, healthcare, and job creation.
Among the five republics, Tajikistan has the youngest median age at 21.5 years. Kazakhstan has the highest at 29.5; however, it is the only state trending towards a younger median age. With such an age distribution, Central Asian societies’ demands for qualitative changes in the social sphere and the labor market are both expected and justified. The younger generation strives to improve their well-being through access to quality education and promising jobs, and, as a result, decent wages. Central Asia’s young population is at risk of being underutilized or getting caught in the “middle income trap,” where a country reaches a certain income level but can’t advance to a high-income status, typically because of stagnant productivity, lack of innovation, and insufficient competitiveness. Escaping this trap for Central Asia entails a strategic investment in advanced education and innovation, the building blocks of high-value industries that can drive a sustainable economic expansion.
In Kazakhstan, for example, more than 54,500 students are currently enrolled in various studies of emerging technologies, including 31,400 officials undergoing professional training. In 2023, more than 13,000 graduates of higher and postgraduate education had a 78.7% employment rate, according to data provided by Kazakhstan’s Ministry of Science and Education. All five states face the dual challenge of ensuring that their workforce remains competitive on a global scale while also providing fair wages to their employees. Kazakhstan offers the highest wages in the region at $863 per month.
Over the past five years, despite the Covid-19 crisis, the average salaries in Kyrgyzstan, Kazakhstan, Tajikistan and Uzbekistan have almost doubled. At the same time, the epidemic had a strong impact on their level of employment. Between 2020 and 2022, there was a sensitive increase in the unemployment rate (the number of people actively seeking work but are unable to find employment). Economies are still recovering from the pandemic.
The labor markets of these countries responded to the above challenges by adjusting the conditions for their workers, such as through switching to remote work, providing free retraining opportunities to acquire new skills and successful employment, and giving support to self-employed individuals and small and medium-sized businesses.
However, according to data for 2023, not all countries in the region managed to stabilize the situation in the same manner. In Kyrgyzstan, the unemployment rate remains at 9% (a value unchanged for three years) and Uzbekistan is at 8.4%, while in Kazakhstan, the unemployment rate has returned to the pre-crisis level of 4.8%. There is no publicly available data for Turkmenistan and Tajikistan for 2023.
Media source: https://timesca.com/central-asia-as-an-emerging-economic-region/