- Lieutenant Colonel Khalid Taimur Akram (Retd)
Executive Director, Center for Global
& Strategic Studies (CGSS), Islamabad
The Commonwealth of Independent States (CIS) is an intergovernmental organization comprising of states stretching through Eurasia. It was established in 1991 after the disintegration of the former Soviet Union. The member states in CIS are Russia, Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan. The idea to create such association of sovereign states was conceived by three Salvic States’ leaders including Russia, Ukraine, and Belarus to substitute the collapsing Soviet Union. The organization aims to promote economic, military and political cooperation among its members. It involves coordinating the policies of member states in trade, finance, security, law formation, environmental protection, defense and cross-border crime prevention. The organization has continued to develop and strengthen friendship, trust, mutual understanding, and cooperation between the member states.
The Commonwealth of Independent States enjoyed vigorous economic growth between 1998 – the period after the Russian financial crisis – to the year 2008 – that of the global financial crisis. CIS countries have massive energy resources and great economic potential. Moreover, the reason behind their strong economic performance owes to the macroeconomic stability, improved fiscal discipline and tax reforms, energy exports (especially in Russia, Kazakhstan and Azerbaijan) and the implementation of structural reforms.
In the year 1993, the CIS member states signed an Economic Union treaty. This marked a significant transition in the CIS approach to the regionalism, as it introduced a new approach of regional integration. According to the Index of Economic Freedom, the CIS countries substantially increased their economic freedom positions between 2000 to 2010, and this improvement helped promote economic growth in these countries. For example, the economy of Russia, Kazakhstan and Azerbaijan was greatly benefited from increased energy exports, subject to the rising prices of oil and oil products. CIS is very diverse in terms of economic potential, Russia being the most vibrant state in this regard. In the year 2011, Russia accounted for more than 76% of the CIS GDP and 66% of its exports. CIS region comprises of energy rich countries, thus energy has massive implication for growth and macroeconomic stability in these countries. It is one of the largest global energy producing regions, contributing around 15% of world oil exports and over 25% of gas exports. Russia accounts for a large majority of this, and many economists argue that in future Kazakhstan also will become a group of the largest global oil producers.
Russia is also the largest producer of natural gas in the CIS region. About 85 per cent of its crude oil is exported to countries outside the CIS region. The natural gas from Russia accounts for about 25 per cent of total natural gas exports to Central and Western Europe. Kazakhstan is also emerging as a major oil producer in the region, being a major exporter to non-CIS countries. Azerbaijan is a substantial oil exporter to the world markets as well, along with Turkmenistan and Uzbekistan as large producers and exporters of natural gas within the CIS region.
The following figure shows the share of CIS countries in the total CIS GDP in the year 2011, where Russia’s share stood at 76.6 %.
Source: CIS-STAT, World Bank
Commonwealth of Independent States witnessed favourable economic outcomes in year 2018, with accelerating growth and slowing inflation, as the oil and other commodity prices increased. The economy of Ukraine has expanded by about 3.2 per cent in 2018 and this trend is likely to continue. In central Asia, growth was robust in Tajikistan due to larger aluminium and gold exports and Chinese investment in metals processing. A series of economic reforms in Uzbekistan attracted foreign investment and boosted inter-regional trade. Tajikistan and Turkmenistan are set to see GDP growth of above five per cent in the coming years, while Uzbekistan’s economy could expand by more than 6 per cent.
Uzbekistan’s economic outlook remains favourable as a series of reforms which began in 2017 have begun to improve the environment for high-potential growth sectors, such as tourism, textiles, and chemicals. Azerbaijan is undergoing a major oil boom, with increasing net exports, thus making Azerbaijan one of the largest contributors to total non-OPEC output growth. Large hydrocarbon reserves and access to oil and gas pipelines, independent of Russia are the key strengths of the energy sector in Azerbaijan.in Belarus, the oil sector plays an important role in its economy as it produces substantial volumes of oil products, which make almost 40% of its exports to non-CIS countries. The strengths of the energy sector of Belarus is its developed refining capacity, a strategic location on transit corridors and proximity to EU markets.
Georgia also has a substantial energy potential, which got enhancement with the opening of the BTC and Baku – Tbilisi – Erzurum pipelines, thus making it an important transit corridor for Caspian Sea region’s oil and gas. Similarly, Kazakhstan has the Caspian Sea region’s largest crude oil reserves and is a major producer of oil, gas, coal and uranium in the region. The key strength of the country’s energy sector is its large oil and gas reserves and proximity to China for enhanced trade. The Kyrgyz Republic has rich hydro-power potential, which is exported to Kazakhstan, Uzbekistan, Russia and China. Moldova makes the smallest energy market among the CIS members. However, it serves as a transit corridor for Russian gas exports to Turkey. Turkmenistan owns massive gas reserves and is the largest gas producer and exporter in the region. The energy sector has also played an important role in attracting FDI. CIS constituting resource-rich countries have attracted the largest Foreign Direct Investment inflows. In the past, FDI in these countries was limited to the energy sector only, but recently it has started to incorporate other sectors as well.
Despite huge energy and natural resources, the CIS economic policies have not paid attention as they should have. There are multiple reasons for this under-achievement. Since the creation of the CIS, there have been more than 1,000 agreements signed by the Community and barely a few have of them entered into force. Countries such as Georgia and Ukraine have tried to avoid the ratification of the agreements. Moreover, despite the ratification of some agreements, the effective mechanism of implementation of the agreements is so weak that hardly any CIS country has proceeded to the application of accepted provisions. The Eurasian Economic Community (EEC), which was signed in the year 2000 in Kazakhstan, has also been unable to achieve its goals. EEC was established to create a free trade area in the CIS region, which would create conditions for a higher degree of integration in the form of a customs union and then ultimately the formation of a single economic area. However, in the year 2002, the Russian Ministry of Economic Development and Trade had declared that the creation of a free trade zone between Russia and Ukraine is not in the interest of the countries. The Commonwealth of Independent States represents an important and promising market, and the potential of the CIS region needs to be utilized. To improve inter-regional trade, CIS needs to reform its policies and develop a productive approach. This includes establishing an organizational mechanism for implementing interstate decisions in the CIS members, overcoming the barriers interfering inefficient development of the CIS trade-economic relations and increased coordination among member states. Moreover, CIS countries need to re-negotiate the free trade agreements, moving from that of bilateral agreements to effective multilateral agreements.