In Pursuit of Added Value. Are Central and East Asian Countries in for “Resource Internationalism” and “Continentalism”?
(no votes) |
(0 votes) |
In his speech at a meeting of the Council of Elders on September 14, 2016, President of Turkmenistan Gurbanguly Berdimuhamedow noted that the country’s oil and gas sector should be oriented towards making finished products, rather than exporting raw materials to foreign countries. If this foreign policy turns into a long-term trend, not only for Turkmenistan, but also for other regional exporters of raw materials, it could impact the structure of economic ties between the countries of Central and East Asia.
Naturally, that keynote speech itself was not enough to draw any far-reaching conclusions; however, the address does set the stage for further discussions. The statement by the President of Turkmenistan should also be considered in the context of the country’s domestic policy: it was addressed to Vice-Premier Yagshygeldi Kakayev, who oversees the oil and gas sector. The latter has been getting weaker in the past few months as a result of the restructuring of industry agencies: in July, the State Agency for Management and Use of Hydrocarbon Resources under the President of Turkmenistan led by Kakayev was officially dissolved. The possible adjustments to the economic policy of the country may have domestic underpinnings.
vestikavkaza.ru
Nevertheless, the change in priorities from extraction to processing fits both the logic of any country that is heavily dependent on the export of raw materials and willing to enhance the value added of its products, and the current situation on the commodities markets, which are characterized by low prices. In the case of Turkmenistan, the dependence on gas buyers is another challenge. China has become a de facto monopolist – Turkmenistan sells its natural gas to China in order to repay its debt. Gazprom has suspended purchases of Turkmen gas, and pipelines to Europe and India remain on paper and depend on many factors, despite Ashgabat’s efforts in this matter.
Under the circumstances, countries and companies that can offer exporters of raw materials effective and affordable processing solutions will be the ones to benefit. In the case of Turkmenistan and Central Asia as a whole, East Asia, especially Japan and South Korea, which focus on the export of technology and infrastructure, will likely enjoy the best opportunities. Both East Asian nations have been interested in importing Turkmen natural gas since the 1990s; however, effective supplies were impeded by delivery issues and the stronger bargaining positions of raw materials exporters during the boom of the 2000s. Politicians in Japan and other resource importers criticized the change in the balance of forces, referring to the new situation as “resource nationalism.” However, the slowdown in China and the subsequent reduction in the prices of raw materials in the middle of the 2010s brought the global market back to the landscape of the 1990s, which, according to importers, is closer to “resource internationalism.” Japan, South Korea and other countries that have sought a stronger foothold in Central Asia by providing competitive solutions are seen as natural partners to facilitate the economic diversification of Central Asia, the more so because the latter has been increasingly dependent on China, both in finance and trade.
Kent E. Calder, an international relations expert and specialist on East Asia, referred to the complementarity of the economies of major inland producers of raw materials (Russia and Central Asia) and East Asian importers as the “New Eurasian Continentalism.” The latter are experiencing problems not only because of the deficit of their own resources, but also because of the oil and gas premium going to Asia from other regions. The “Asian premium” is partially attributed to political and economic reasons: Japanese, Korean and Chinese companies entered the global market when the major deposits were already being developed by Western and Middle Eastern companies.
In this context, the deposits in the centre of Eurasia remain appealing to the continent’s easternmost countries. It used to be hard for them to compete with China, which became the centre of attraction for Central Asian exports of raw materials due to its location and other factors; however, the reorientation to higher added value will tip the scale in favour of supplies of hi-tech solutions. Japan notably has a good track record in reconstructing and upgrading oil refineries in Kazakhstan, Uzbekistan and Turkmenistan. However, the Shinzo Abe government has placed an even greater emphasis on high technologies. During his tour of the region in October, Abe reached agreements on Japanese investments in gas chemical and processing facilities in Turkmenistan to the tune of $18 billion.
In a broader perspective, the fallout of this policy can be seen in the infrastructure documents approved at the G7 Summit in Ise-Shima. Japanese diplomats did their best to have a separate document dedicated to infrastructure, as well as an emphasis placed on the quality of infrastructure, included in the package of concluding statements. The focus on quality seems to stress the competitive advantage of Japanese technology and justifies the higher costs compared to similar solutions developed in China. Interestingly, back in the “beefy” 2000s, inflows of petrodollars enabled exporters to postpone reforms aimed at achieving higher added value. However, the current turn to processing and gaining access to appropriate technologies – even expensive technologies – is imperative. Otherwise, complementarity within East and Central Asia will be maintained during the current phase as the preservation of their specialization as raw materials exporters in consolidating global value chains.
(no votes) |
(0 votes) |