The most underdeveloped economies of Central Asia, Tajikistan and Kyrgyzstan, both have relied heavily on Chinese investment but throughout 2014 Chinese FDI throughout Kyrgyzstan has dropped some 35%. The main influencing factors have been the decision to join the EEU and the constantly changing political leadership in Bishkek. Although some good news has come out of Kyrgyzstan in the form of increased output from the Kumtor gold mine (up 25% in 2014). Despite the consensus that Kyrgyzstan has a more friendly and equitable business environment for FDI, Chinese Tajik projects have fared much better than their Kyrgyz holdings.

Zijin Mining Group, which has gold producing mines in both Tajikistan and Kyrgyzstan, said its Tajik assets outperformed the Kyrgyz ones by several degrees of magnitude. However, many analysts say that this could simply be a result of increasing interest in Tajikistan and not a result of waning interest in Kyrgyzstan. Most investors are apparently wary of how EEU trade regulations will affect their Kyrgyz holdings, and indeed, much of Kyrgyzstan’s export economy is based on re-exportation of retail and material goods from China into Kazakhstan and Russia.

Despite the uncertainty, railway construction is still proceeding, with President Almazbek Atambayev meeting with Chinese officials to discuss the implementation and planning.

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News Briefs:

• Thirty have been killed in the bombardment of Mauripol in eastern Ukraine on Saturday. Some 102 people were injured in a shelling blamed squarely on pro-Russian separatists using Grad rocket systems, which was the same artillery system used to destroy a civilian bus two weeks ago. These Grad rocket systems, according to the Ukrainian Department of Interior, were likely distributed to the Donetsk People’s Republic by the Russian government. Whatever the case, the surge in the conflict has essentially completely derailed the nominal ceasefire that was agreed to back in September.

• Kazakhstan’s National Bank Governor has assured Parliament of the stability of the tenge, despite concerns that the dropping price of oil and crashing ruble has created too much uncertainty. He said that they are preparing for a price of $50 a barrel. Most investors are anticipating a devaluation of the tenge, considering recent events and the 20% devaluation early last year to lower interest rates and spur lending.

• The World Bank is improving access to credit for Tajik companies to stimulate growth, according to a statement released after a conference between the World Bank’s Global Practice and Tajikistan’s National Bank last week. The World Bank is also advocating reform to improve transparency for foreign and local business operations. The initiative will focus on improving access to financial services for four key sectors: Health, Rule of Law, Drinking Water Supply & Sanitation, and Private Sector Development.

• Iran’s Foreign Minister Javad Zarif warned US Congressional policymakers that the imposition of new sanctions would lead to a collapse of negotiations over Tehran’s nuclear reactor program. Zarif called on the international community to isolate the US Congress as being an impediment to a comprehensive deal with Iran that would lift sanctions and potentially end its nuclear ambitions. Republicans controlling Congress are divided on two paths to bring any prospect for a deal under their control – the one with the most support is to create a bill that would require President Obama to submit any agreement to Congress for approval. The second concerns additional punitive economic sanctions if no deal is reached or if Iran is seen to violate the terms of the agreement.

• Two Armenian soldiers were killed in clashes with troops from Azerbaijan on Friday of last week, but both countries gave disputing death tolls and immediately blamed the other for instigating the attack. While this is a common occurrence, the fact that Nagorno-Karabakh falls within a strategic oil transportation zone and Armenian partnership with Russia through the Customs Union means that any significant confrontation could escalate very quickly.