Standing at the crossroads of east and west, the countries of Central Asia and the South Caucasus have seen a surge in growth and investor interest in recent years, accompanied by a steady rise in cross-border transport, trade, and energy cooperation.
Cross border linkages have been shown to deliver multiple benefits, including opening up new market opportunities, creating jobs, and reducing poverty, and ADB has been supporting this process through the Central Asia Regional Economic Cooperation (CAREC), which has invested over $24 billion in its 10 member countries from 2001-2014. ADB’s current share of CAREC spending is $9.2 billion, over a third of the total.
But despite this influx of money, the region still faces formidable obstacles. Most countries are landlocked with limited connectivity and infrastructure gaps, many are heavily reliant on a narrow base of natural resources, and costs are high. The recent slump in oil prices and difficulties in the Russian Federation—one of Central Asia’s key export markets—have also weighed on growth.
Nevertheless, the rapid economic expansion of the People’s Republic of China (PRC) and Japan to the east, the Russian Federation to the north, and India and Pakistan to the south present major new market and growth opportunities for this region, provided it can overcome these challenges.
A seminar at ADB’s Annual General Meeting in Baku, Azerbaijan entitled Central Asia, South Caucasus and the Future of Regional Cooperation and Integration looked at how closer cross-border ties can help the region overcome existing challenges and take advantage of new opportunities. Here are the key takeaways from the panel discussion:
- Despite substantial progress, infrastructure deficits remain, and need to be addressed to get further benefits from regional cooperation.
- “Soft” investments in areas like removing cross-border red tape, trade financing and facilitation, logistics, research and development, establishing export processing zones, and human capital development must be stepped up and are just as important as “hard” infrastructure investments.
- Central Asia needs to work on improving the enabling environment for small and medium-sized businesses, to promote economic corridor and economic zone development, and to strengthen relevant institutions.
- A regional trade facilitation agreement that reduces border controls and cuts red tape will help it access international value chains.
- The current slump in commodity prices affecting Central Asia and the South Caucasus is cyclical and only a temporary setback, but the region must continue to use its resource endowments to make both hard and soft investments.
- Even with its current slowdown, the PRC offers huge opportunities with its large pool of capital for investment and fast expanding tourism market.
- Countries must develop their own domestic economies before they reach out into Central Asia and the South Caucasus, and must resolve ongoing conflicts and security issues to reap the full benefits of regional cooperation.
- Countries need to show more political will and support for cross border cooperation and speak with one voice, rather than seeing it as a zero-sum game of winners and losers.
- Global digital connectivity helps overcome barriers of distance and sparse populations offering new opportunities for Central Asia and the South Caucasus, such as the possible development of a regional capital market.
- More knowledge sharing is needed among partner countries, and the establishment of the CAREC institute in Urumqui, PRC last March is a positive step forward in this direction.
The panel moderated by David Pilling, Asia editor for the Financial Times, included Frederick Agah, Deputy Director General of the World Trade Organization; Sahil Babayev, Deputy Minister of Economy and Industry of Azerbaijan; Kenneth Courtis, Chairman of Starfort Holdings and BTG-Pactual Asia; Daniel Wieland, Senior Vice President for Rail Logistics and Forwarding at Schenker AG; Kae Yanagisawa, Vice President of the Japan International Cooperation Agency; and Jianping Zhang, head of International Economic Cooperation at the PRC’s Institute for International Economic Research, National Development and Reform Commission.