Reviving connectivity and diversifying trade in Central Asia

Published on Thursday, 21 March 2019

Published by Dorothea Lazaro and Loreli de Dios on Thursday, 21 March 2019

Long lines and delays have often been a feature of border crossings in Central Asia. Photo: ADB
Long lines and delays have often been a feature of border crossings in Central Asia. Photo: ADB

In 2017, truck drivers reported to have taken as much as 58 hours and $318 for export goods to cross one of the borders in Central Asia.

In other parts of the region, truck shipments still take an average of 17 hours and $158 to clear cargo at the borders. Queueing and customs clearance, which lasts equally long, make up most of this. Rail transport is worse, at 27 hours and $209. Waiting – because of faulty handling equipment, shortage of wagons, entry restrictions, or the passage of priority trains – also accounts for much of the time and costs spent at the borders.

To some extent, these factors affect how much trade takes place in the Central Asia Regional Economic Cooperation, or CAREC, program, which groups together 11 countries and development partners to promote sustainable development through cooperation. While one member – the People’s Republic of China – contributes 11% of global trade, the rest of the 10 CAREC member countries contribute less than 1%. In these 10 countries, fuel and mining products make up more than half of the exports and the insufficiently developed manufacturing sector constitutes a mere 17% of gross domestic product.

Trade within the CAREC region is relatively limited compared with other subregions in the Asia-Pacific. CAREC’s intra-regional trade intensity index at 0.2 lags behind the Association of Southeast Asian Nations (ASEAN)’s 3.2, the South Asia Subregional Economic Cooperation (SASEC)’s 2.2, and the Greater Mekong Subregion (GMS)’s 0.6. 

  In Central Asia, it used to take as much as 58 hours and $318 to cross a border.

Eurasia – which covers most Central Asian countries – has been widely considered a region of movement, interaction, and connectivity. The Steppe Route between the northeastern part of People’s Republic of China and eastern Europe was made possible by the domestication of horses. It foreshadowed the Silk Route, which lasted for another 1,500 years. While maritime transport eventually out-competed land routes, commercial networks continued to be active between Russia, Central Asia, India and the People’s Republic of China until the 19th century— thanks to sustained regional networks, the variety of exchanged commodities, and the role of states.

The CAREC region also bursts with enormous potential, particularly as natural endowments abound. For instance, there are substantial mineral deposits in the region, including rare earth elements such as lanthanides and yttrium, which are considered “essential for any product with a microchip”. Thousands of species of flora and fauna are endemic; several types of fruit and nuts originated from these countries and the region is tagged as a “storehouse for wild genetic diversity”.

There is a strong desire to capitalize on the region’s dynamic history and rich resources in order to yield economic benefits, including through greater economic diversification.

  Countries in Central Asia are working together to make it easier for goods and services to cross borders.

But the question is how?

CAREC countries could begin by streamlining border procedures and requirements. While some are integrating border functions in one agency, others can improve interagency cooperation to minimize duplication of documents and avert irregularities. Investments in infrastructure to improve critical border crossing points must also be accompanied by soft infrastructure such as the regulatory alignment with international standards, use of single window platforms and introduction of risk-based systems for inspection and quarantine as well as for treatment of goods in transit.

Technology for trade, such as e-commerce, is ripe for promotion. There is heavy use of the internet, and most countries have a more than 1:1 ratio of mobile phone subscription per person. Almost all CAREC countries have adopted legislation on electronic transactions and some have provided necessary infrastructure for e-payment and delivery.

A business-friendly climate must continue to be cultivated. Domestic supply capability – in terms of value added, variety, and quality – could be strengthened in order to expand to new markets and participate more sustainably in the global value chains. This includes enabling policies that will attract capital and investments and facilitate trade in services.

The services sector, which produces critical inputs to other economic activities and complements manufacturing in particular, offers huge potential. A variety of services and subsectors already operate in each country. Professional, management, engineering, technical and related services; telecommunications, computer, and information services; manufacturing services; financial, insurance and pension, and construction, for instance.

Underlying all of this is strengthened institutions for trade in the CAREC region. At the national level, dialogue and cooperation must be sustained among customs, trade and finance ministries, and border agencies dealing with standards and sanitary and phytosanitary measures standards to be effective mechanisms for policy formulation and implementation.

At the regional level, a collective action which also caters to specific country circumstances is embodied in the CAREC Integrated Trade Agenda 2030. Endorsed by the Ministers in November 2018, the agenda promotes trade expansion from increased market access including through freer trade and lower trade costs.  

With these measures in place, the waiting time and cost in crossing the borders can be drastically reduced. In one of the CAREC corridors, waiting time has already been down to less than 2 hours and at average cost of $4.