Central Asian integration: doomed vision or promising future?

By ADB Institute on Tue, 15 April 2014

Written by Sebastian Paust, member of the ADBI advisory council

Central Asia has for centuries been seen as a neglected Russian “backyard,” but international interest in the region has increased over the last two decades because of its vast stores of energy and natural resources. To achieve a brighter future the region must pursue economic integration.

In the early 1990s, Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan became independent countries with the collapse of the Soviet Union. The abrupt separation from Moscow, the sudden interruption of economic relations under the Soviet Union, and the unprepared transition from state-directed to market economy created a deep economic crisis in all five countries.

However the five economies have rebounded with relatively high growth rates over the last ten years based on exports of natural resources underpinned by rising global prices. The reason for the high growth rates? Central Asia became attractive to the EU and the US, as well as other Western countries and People’s Republic of China (PRC), as providers of energy and natural resources.

Central Asian countries have relatively small economies that are dependent on the export of a handful of commodities and their trade is concentrated on a small number of countries outside the region. This dependence on limited exports and trade partners creates vulnerability to changes in import demand and other external shock risks.

Despite limited economic integration, Central Asia has maintained impressive export growth. However, a more integrated Central Asian trade block could create valuable synergy and strengthen its negotiating power on trade agreements, as well as offering greater protection from arbitrary sanctions by major trading partners. Expanded regional integration in transport networks and logistics services would save time and money at border crossings and shorten transport routes, and deeper ties would also stabilize and strengthen economic growth and serve as a positive influence on the potential conflict situation in the south, especially Afghanistan and Pakistan.

Even as the region has experienced rapid growth, the share of intraregional trade in Central Asia relative to the region’s trade, which plummeted after independence, has not reached pre-independence importance in relative terms. In addition, there is the challenge of various integration initiatives in the region overlapping, which could lead to increasingly complex treaty commitments and conflicting contractual obligations.

Among these are the Shanghai Cooperation Organization -which has apart from PRC and Russia, member states from Central Asia, including Turkmenistan- as well as the EurAsian Economic Community, which includes Belarus and Russia, as well as Kazakhstan, Kyrgyz Republic, and Tajikistan.  In 2011, another integration project was launched called the Free Trade Area of Independent States, with Armenia, Belarus, Kazakhstan, Kyrgyz Republic, Moldavia, Russia, Tajikistan, Ukraine and Uzbekistan as members. This agreement has not come into force yet.

There is also the ADB-supported Central Asian Regional Economic Cooperation (CAREC) program created in 1997 to encourage closer economic links amongst countries in Central Asia. CAREC supports transport and transit corridors, trade facilitation, and communication and consultation among the ministries of member states.

So which integration model is best for overcoming regional reluctance and guaranteeing the greatest economic and political benefits for Central Asia?

CAREC, with its focus on economic integration, offers the best choice. CAREC’s inclusion of Afghanistan and Pakistan is consistent with the geostrategic need to gain stabilizing effects from Central Asia’s economic integration for these politically fragile and economically weak neighbor countries. In addition, CAREC includes only the PRC as a global trade actor of economic importance for the region. This is understandable because the PRC has replaced Russia as the region’s top trade partner with an annual PRC–Central Asian trade volume of $46 billion.

But Russia will resist being pushed out of the economic and political sphere of Central Asia. To avoid confrontation with Russia and dependence on the PRC, it is best to take Russia “onboard” CAREC, or at least invite it to join an economic partnership agreement in the form of a “CAREC plus” approach—an offer that may be difficult for Russia to resist. When taking onboard the above mentioned economic and geostrategic interests of the US and the EU, it makes sense to go even further to a CAREC+3 approach (CAREC plus Russia the EU and the US). East Asia’s highly successful ASEAN+3 model could provide valuable inputs.

CAREC+3 would not only mitigate a one-sided CAREC dependence on PRC. It would also provide PRC and +3 associates with a better basis to use their political and economic inputs into the region as leverage against the anti-integration reluctance amongst the region’s governments.
This could help Central Asian governments, neighboring countries, and international partners bolster the region’s defenses against destabilization from a broader invasion of extremism and terrorism, primarily from the south and create an incentive amongst CAREC members and +3 associates to work together for a more integrated, prosperous, and stable region.

The various Silk Road initiatives offer good starting points for revitalizing Central Asia’s integration spirit from the outside, but they have to be carried out in a balanced, consistent, and coordinated way to reduce risks of rivalry and imbalances, as well as to take onboard the strategic concerns and interests of all relevant political actors.

A broad and coherent CAREC+3 approach can fulfill the vision of an economically integrated and prosperous Central Asia.

(This blog is republished with permission from ADB Institute. To see the original please click here)