Central Asia, Caucasia in transition

Since the collapse of the Soviet Union in 1989, most countries in Europe and the Commonwealth of Independent States have tried to reintegrate with the world economy. However, 12 years later, some of those countries, especially those in Central Asia, are still finding it difficult to manage a market-driven economy.

According to the European Bank for Reconstruction and Development, the states of Central Asia and Caucasia remain in the lower ranks of the transition economies in terms of growth, investment and structural reforms. The average income among Bulgarians, Romanians and Russians is, at best, equivalent to around US$1,500 per person, though for workers in the Kyrgyz Republic and Tajikistan, it can be as low as US$200.

The slow destruction of obsolete industries has made these economies increasingly reliant on the agricultural and extractive sectors. The share of agriculture in national output is a high 40% in the Uzbek and Kyrgyz economies. In Azerbaijan, Kazakstan and Russia, the extractive industries make up some 30-50% of industrial output, so they are very vulnerable to global trends in international commodity prices.

Huge gold deposits exist in several countries in the region, in particular Russia, Uzbekistan, Kazakstan and the Kyrgyz Republic. However, with the exception of the Kyrgyz Republic and Uzbekistan, gold exports do not provide significant export earnings. This is partly because several governments have preferred to use domestic gold production to build up their central bank reserves. The trend is especially apparent in Kazakstan, where gold reserves reported to the International Monetary Fund have grown to 57.2 tonnes in mid-2001 from 20.2 tonnes in 1993. Russia’s gold reserves have grown to 395 tonnes at present from 317 tonnes in 1993.

But among the smaller producers, such as Bulgaria, Romania, Tajikstan and Yugoslavia, low gold prices and extreme political uncertainty have prevented the development of the sector. Others, such as Ukraine, which is believed to have not only significant gas but also gold deposits, have been unable to develop their resources because of lack of investment.

The focus of governments on gold production has recently increased across the region.

Efforts to attract foreign investors into this sector in the mid-1990s were not successful, as they were by and large unfamiliar with the harsh physical environment, the remoteness of prospective regions, and the peculiarities of the business and political procedures. What’s more, the decline in gold prices at the end of the 1990s led to the abandonment or scaling-down of the few projects that were being explored. Examples include Armenia’s Zod lode, Kazakstan’s large Vasilovskoye and Bakyrchik mines, the Kyrgyz Republic’s Jerooy, and the Kyzlmasai and Kochbulak fields in Uzbekistan.

A short-lived recovery in gold prices in 2000 galvanized some of these back into action. In Russia, which has the potential to become the fifth-biggest gold producer, delays in enacting production-sharing agreements have held up foreign investment in exploration and production. The most important delay has been that that affected development of the Sukoi Log gold fields in Irkutsk in eastern Siberia, thought to be the biggest undeveloped gold lode on the Eurasian land mass.

— The preceding is an excerpt from The Golden Road: The Importance of Gold Mining in the C.I.S. and Eastern Europe, published by the London-based World Gold Council.