A HIGHLAND FLING: SCOTTISH INVESTMENT IN CENTRAL ASIA

As of this year, Great Britain has enhanced its focus and attention on Central Asia. David Cameron, the UK Foreign Secretary and former Prime Minister, conducted a high-profile visit to all five Central Asian states and Mongolia in April 2024. His visit was to talk about investment and build economic relations in light of Central Asia’s increasing importance in world trade. It was the first time a British Foreign Minister visited Tajikistan. No doubt he was also trying to increase Central Asia’s independence from Russia as well, given the situation in Russia-Ukraine. He announced GBP50 million in investment during the visit, to boost growth and trade over the next three years. Cameron also signed new memorandums of understanding and economic agreements with Tajikistan, Kyrgyzstan, Uzbekistan, and Kazakhstan, expanding cooperation.

In the past, Scotland has been very influential in Kazakhstan’s and Azerbaijan’s oil sector, particularly the given its experience in North Sea oil. Quite a few Scottish oil services companies operate in the Caspian. As North Sea operations wind down, given the shrinking rate of recoverable oil, some Scottish Oil & Gas companies have sought opportunities in Central Asia.

For 10 years I worked on the Board of Directors of Wood & Co, a global oil and gas engineering co largely based in Aberdeen, which ran a very successful Kazakhstan Joint Venture. Wood provided leading oil & gas services from around the world to Kazakh oil & gas companies Upstream and downstream companies, including Kashagan, Chevron TCO, and Karachaganak.

Scottish investment in the CIS, and therefore Central Asia, are subject to the increasingly fraught state of relations with the Russian Federation and not just Central Asia’s increasing geopolitical influence. The West, the UK, and Scotland, have increasingly tried to participate in Central Asia’s economy, including through multi-national economic or infrastructure projects such as the Central Asian CASA-1000 Hydro Project.

Scotland’s fund and asset management sector has been relatively active in Asia. Only recently has it become obvious to what extent Central Asia justifies an allocation from these funds. If it weren’t for the Russian risk, these allocations would probably go up.

Central Asia’s Belt & Road projects give a Chinese angle to Scottish investment in the region. To an extent, given the increasing importance of Chinese investment in Central Asia, Central Asia is seen as a proxy investment in China to some extent. Given the historical relationship between Scottish companies and the “Hongs” of Hong Kong, such as Jardine group, there might be similar opportunities in the future for Scottish companies given China’s rapid expansion in Central Asia. However, deeper participation with China trade has its risks.

There is the subject of sanctions circumvention and dual-use goods, but this does not really apply to Scottish companies. They don’t have the historical relationship with Russian trade that creates this risk to the same extent as local companies.

Opportunities in the Middle Corridor, and cross Caspian trade, are an increasing opportunity for Scottish companies. An alternative to the Russian trade route, the Middle Corridor is seeing an increase in traffic. This goes hand in Hand with the growing international presence of Central Asian imports and exports. Other western nations are also recognizing Central Asia’s increasing importance. This includes President Biden’s September meeting with the Central Asian heads of state, the U.S. establishment of the Critical Mineral Dialogue, and the EU’s €10 billion Central Asia infrastructure investment in January. Scottish investment would be alongside such interest. The UK’s parliamentary Foreign Affairs Committee, which includes Scottish participation, published a report November 2023 that recommended greater engagement with Central Asia.

Scottish investment in Central Asian oil & gas is likely to continue, with new opportunities in other sectors of the Central Asian economies opening up. Some Scottish oil & gas companies are expanding into mining, such as Wood & Co. There are certainly mining opportunities in Central Asia. Edinburgh’s financial sector hasn’t traditionally been that involved in Central Asia’s new financial hubs, or maturing property sectors, but there are an increasing number of opportunities emerging.
As the Central Asian economies seek further independence from their two powerful neighbours, Scotland has a lot to offer. There is an opportunity to build new and enduring economic relationships in Central Asia as these new nations mature and grow.

by Bruce Gaston