The key issue for the for the next few years in Central Asia is the search for, the establishment of mechanisms and the consolidation of the practices and norms of the economic model of mutual development in the institutions. Besides, the mutual development should be based on:
- Strengthening regional / cross-border domestic trade. The current trade potential between the Central Asian states is less than 10% of the total trade turnover of the five countries. In the EU, this figure exceeds 60%, in APEC - 68%. According to the UN, efficient cooperation among the Central Asian countries could double regional GDP over 10 years. Despite the fact that the bulk of merchandise exports of Central Asian countries are fossil natural resources and products of their primary processing (approximately 80–90% of total merchandise exports in 2017), the countries of the region trade in these goods with each other, although to a much lesser extent than they sell them outside of Central Asia.
But if we consider the volumes of merchandise exports less mineral products and metals, then the share of exports to the countries of the region increases to 30%. This means that as for the goods that are not minerals, active intraregional trade is already taking place, despite the presence of still existing barriers on its way. The largest share in the volume of regional trade is represented by the export of goods from Kazakhstan and the import of goods to Kazakhstan, which is in line with the size of its economy. At the same time, the share of Kazakhstan in the regional trade turnover (41.8%) is almost one and a half times less than the share of the country in regional GDP (more than 60%). In the regional trade turnover, the share of Uzbekistan (29.5%) is higher than its share in regional GDP (18.4%) and in terms of the volume of imports of products from the countries of the region, it even leaves Kazakhstan behind. The shares of Kyrgyzstan and Tajikistan in the regional trade turnover (14.3% and 10%) significantly exceed their shares in regional GDP (2.9% and 2.7%). Thus, these countries more than others participate in the regional division of labor and are more dependent on regional trade;
- Joint promotion or cooperation while working on external large markets for goods and services;
- Shared or coordinated visions of the development of the network of transport and logistics capabilities of the region and its integration into the inter-regional flows of finished goods and raw materials. Here the most tried and tested as well as intuitively understandable is the EAEU market. China’s markets (Kyrgyzstan is the only Central Asian country that has singed a “green corridor” agreement with China, through which it can export agricultural products to China without tariff restrictions), the European market (Kyrgyzstan is the only Central Asian country, which has signed a GSP + agreement for export of 6,500 commodity names without tariff restrictions) are potentially interesting. But subject to the existence of multi-million investments and the establishment of large conglomerates of agricultural producers from Tajikistan, Kazakhstan, Uzbekistan and Kyrgyzstan, is it possible to build sufficient capacities for growing uniform high-quality products, their processing, packaging, labeling and promotion in foreign markets;
- Formation of common transport corridors in Central Asia to increase both regional trade and the use of the region’s transit potential in order to improve the quality of life of the population, improve the interconnectedness of the region, and enter new sales markets. The region needs common roads, which, like hundreds of years ago, will form new routes not only for goods and people, but also for knowledge, dialogue of cultures and ethnicities, development of foreign and intra-regional tourism. Experts predict that by 2030, goods worth a total of US$176 billion will be transported through the countries of Central Asia.
To effectively use the Central Asian highways, it is necessary to remove a number of non-physical barriers at checkpoints and in the territory of the countries of the region, reduce the number of unauthorized stops and inspections of drivers and goods, harmonize the maximum permissible parameters of vehicles.
CAREC transport corridors are an example of successful cooperation!
Officially established in 2001, the Central Asian Regional Economic Cooperation (CAREC) Program is a partnership of 10 countries and 6 multilateral institutions assisting development through cooperation. CAREC is helping Central Asian countries and their neighbors to realize the enormous potential of integrated Eurasia by developing regional cooperation in transport, trade facilitation, trade policy, and energy. The rapid economic growth of the People’s Republic of China (PRC) and Japan in the east, the Russian Federation in the north, India and Pakistan in the south is increasing the demand for improved communication between Europe and Asia. This gives CAREC member countries an unprecedented opportunity to become a center for trade and commerce, while at the same time increasing economic growth and reducing poverty. No country in the region can fully take advantage of this opportunity alone, but all together the countries will benefit from cooperation based on their strengths.
In Tajikistan, the CAREC Program helped to mobilize more than US$730 million through the Asian Development Bank (ADB), the European Bank for Reconstruction and Development, the Islamic Development Bank, the World Bank and other development partners in order to increase energy efficiency and develop a regional energy market; modernize regional road corridors, air fleet and navigation systems, border crossing points and to facilitate trade.
The results of the CAREC Program in the region are as follows:
• construction and rehabilitation of 2,600 kilometers (km) of roads;
• laying of 2,000 km of railway tracks;
• improved ports and border crossing points; and
• increased provision, efficiency and distribution of energy.
The CAREC transport corridors connect the main economic centers of the region with each other, as well as the region with other Eurasian markets. The Action Plan for implementation of the CAREC Transport and Trade Facilitation Strategy is an active investment plan to modernize the six corridors in accordance with international standards by 2017. This will lead to significant and measurable improvements in the implementation of intraregional, interregional and transit trade. More efficient trade will support business development, job creation and poverty reduction.
The corridors were selected based on an assessment of five factors:
Existing volume of traffic
The prospect of economic growth and traffic growth
Opportunities for increasing connectivity between economic and population centers
Potential to reduce delays and other obstacles
Economic and financial sustainability
Each corridor will improve access for CAREC countries to at least two large Eurasian markets.
CAREC countries: Kyrgyzstan, Kazakhstan, Tajikistan, Uzbekistan, People's Republic of China, Azerbaijan, Mongolia and Afghanistan
Four (4) of the six (6) transport corridors identified by CAREC as priority and competitive ones in the region, pass through the territory of the Kyrgyz Republic, these are: 1) CAREC 1: Europe - East Asia (along the Bishkek-Naryn-Torugart automobile road); 2) CAREC 2: the Mediterranean region - East Asia (along the Osh-Sarytash-Irkeshtam automobile road); 3) CAREC 3: the Russian Federation - Middle East and South Asia (along the Osh-Sarytash-Karamyk automobile road); 4) CAREC 5: East Asia - Middle East and South Asia (along the Irkeshtam-Sarytash-Karamyk automobile road).
- Creation of a legal, investment and socio-educational environment for the formation of points of conscious and informed entry into the new technological pattern of life. It is obvious that now the region is faced with a question, which technology platform, software and hardware solutions of which leader countries to move on to, when digitizing the public sector. The growing dependence of the countries of the region in the sphere of new technologies on the products of transnational companies can later be used if sanctions / restrictions on high-tech products are applied to any of the countries of the region. A possible way out of the current situation could be a comprehensive cooperation of enterprises and special services of the region in developing a number of industries to create their own element base or at least establishment of a certification center, adaption of software and hardware solutions for digitalization.
Global digitalization continues accelerating, providing convenience and steady growth for governments, enterprises and individuals. Under conditions of such digitalization, the lack of progress will lead to regression in the countries of Central Asia. These countries will be helped only by a quantum leap, which will ensure the search and finding of innovative solutions, the development of best practices and the creation of new competitive advantages. Research has shown that investment in ICT has a significant impact on an economy that goes far beyond its main benefits. This is primarily due to obtaining a positive “side effect”. In 2017, Huawei and Oxford Economics jointly released the Digital Spillover Report (Digital Effect). The report shows that over the past 30 years, every investment in digital technology in the amount of US$1 has led to an increase in GDP by US$20. The long-term return on investment (ROI) for digital technologies is 6.7 times greater than for non-digital investments, and the digital economy has grown 2.5 times faster than average global GDP.
An increasing number of countries and regions are recognizing the enormous potential of digital technology for stimulation of economic growth. Therefore, more national strategies within the digital economy are being created and promoted, such as Germany 4.0, Smart Nation Singapore and Horizon 2020 in the EU. Several countries in Central Asia have also published their national “digital” plans, such as Digital Kazakhstan and the Taza Koom program for building Digital Kyrgyzstan. However, we found that the current level of ICT infrastructure in many countries of Central Asia is far below the world average level. As a result, the most part of the current ICT infrastructure cannot meet the needs of the digital economy. If we consider domestic broadband communication in these countries as an example, we see that the average penetration rate of broadband communication in homes is only 34%, and in some of them less than 10%. This is well below the world average, where the figure is 41.4%. In addition, 79% of all home broadband fixed-line network users in these countries have a connection speed of less than 10 Mbps.
Significant improvements can be made in terms of broadband penetration and user experience in the countries of Central Asia. These countries face serious problems related to the return on investment and the investment cycle of the digital infrastructure, and solving these problems will require the joint efforts of all participants. In this regard, we would like to urge the governments of the countries of the region to be creative in using their policy instruments and to start developing effective policies for foundations, talents and taxes to support the development of ICT. In such a manner, governments can help telecommunications service providers to overcome the problems and risks associated with investment by creating a solid environment that facilitates the use of ICT technologies in all industries.
The Region Status quo
The states of Central Asia are united not only by the geographical location, but also by cultural and linguistic proximity, and by the general history of the centuries-old residence of the peoples inhabiting this region. In my opinion, the key feature of the region is its tolerance, readiness to change, adapt to external conditions and, based on cultural and geographical potential, extract from the abovementioned the opportunities for growth and development.
In my humble opinion, Central Asia was not originally a single political or economic region. The population of Central Asia has never had a common supranational political identity. We are neighbors, but common borders, cuisine and interconnected infrastructural heritage are the few aspects that unite our countries.
In Soviet times in Central Asia, rare exceptions were examples of complete production chains (from steel production to combined harvester production, for example). Therefore, the collapse of the Soviet Union led to the fact that the region was forced to roll back to the level of agricultural enterprises and had great losses in the heavy industries. To some extent, it managed to save the remnants of light industry. Part of the enterprises of the branched military industrial facilities of the USSR was lost forever.
The single economic complex that we have today is based mainly on cross-border trade. However, with the opening of Uzbekistan, the country with the largest diasporas in all the states of Central Asia, including even Turkmenistan, and having access to Afghanistan, the situation has changed dramatically. The processes of economic integration and regional political dialogue began to accelerate significantly. At this stage, we see the “Open Sky” project in Kyrgyzstan, adopted in early 2019, the construction of a large airport in Uzbekistan will be completed by 2020–2021, this also includes the abolition of VAT for some enterprises in Tajikistan, as well as the creation of a Central Asian Schengen. Through a policy of openness, Uzbekistan managed to launch a process of effective and positive competition. Understanding that the risk of being on the sidelines of intraregional (not to mention global) economic progress has increased dramatically, the countries of the region have shifted from political grievances to implementation of mutually beneficial economic strategies.”
In Central Asia, according to data for 2017, there are about 71.3 million people with a total GDP of 265.2 billion US dollars. The undisputed leader in terms of population size is Uzbekistan - more than 45% of the region’s population lives in the country. The first place in terms of the size of the economy, as well as the territory, is occupied by Kazakhstan, where about 60% of regional GDP is produced. Natural resources in Central Asia are also unevenly distributed. Kazakhstan and Turkmenistan have rich energy resources, while Kyrgyzstan and Tajikistan experience an acute shortage of oil and gas.
In Kazakhstan, the key sectors are the manufacturing industry, agriculture, construction, trade, transport and communications. The structure of exports remains fairly stable and does not undergo major changes. The country exports more than 800 commodity items to 123 countries of the world. They include mineral products - oil, petroleum products, petroleum gases and hydrocarbons, metals and metal products, as well as products of chemical and related industries.
Kyrgyzstan. The main sectors of the economy in the Kyrgyz Republic are agriculture, services, light industry, construction, trade and tourism. GDP growth in 2018 amounted to 3.2% in the country. According to the National Statistics Committee of Kyrgyzstan, the largest share in the structure of GDP in the first six months of 2018 fell on the sectors providing services that is 47% of the total volume. The share of agriculture is 10.2%, construction - 6.4%. It is important to note that remittances of labor migrants play a big role in the country's economy. In 2018, Kyrgyz citizens working abroad transferred about US$2 billion to their homeland, in 2017 this figure exceeded US$2.4 billion. About 95% of incoming funds are transfers from Russia.
Tajikistan. The main export producer of the country is the Tajik Aluminum Plant. The enterprise provides up to 75% of all foreign exchange earnings to the national budget of the country. In 2018, the country managed to increase the export of electric energy. A third of all electric power produced in Tajikistan is now exported to Uzbekistan and Afghanistan.
Uzbekistan The most diversified in Central Asia is the economy of Uzbekistan. The country manufactures and exports (to more than 100 countries of the world) a wide range of finished textile products from hosiery to outerwear and industrial clothing. Good prospects are opening up for the supply of cable products and electrical commodities. Production facilities for the manufacturing of electrical household products are developing dynamically. Today, smartphones, tablet PCs, LED and LCD-TVs, refrigerators, air conditioning systems, microwave ovens and other household appliances are produced in Uzbekistan and successfully exported to other countries. Besides, Uzbekistan remains the only manufacturer in the full cycle of passenger cars and commercial machinery in Central Asia. The annual production capacity of passenger cars is more than 300 thousand units.”
Opportunities and vectors of sustainable development
Central Asia as a region is not a common economic space. But it could be, since Kazakhstan and Kyrgyzstan are in the Eurasian Economic Union. Uzbekistan is establishing cooperation and interaction with the countries of the region on a bilateral basis.
An obstacle to the trade and economic development of the region is mutual distrust, expressed in tightened border controls. In this issue, not only the consensus of the countries is important, but also their focus on export industries capable of providing the entire region. Thus, for instance, Uzbekistan, which is strong in cotton processing, can, in coordination with Kyrgyzstan, export large amounts of its products to Russia and the Eastern European market. Kyrgyz sewing workers have developed good well-established connections and schemes there, they have knowledge of the necessary volumes, sizes and standards. Besides, a textile factory has been successfully operating in the Kyrgyz Republic for two years. Tajikistan over the past 3-4 years has managed to restore and strongly develop hosiery and woolens facilities. Thus, Uzbekistan, Kyrgyzstan and Tajikistan are starting to create a cluster. It remains to finalize the moments related to fittings, strengthen marketing aspects and go out to large markets in a cohesive way.
In 2015, Kyrgyzstan by becoming a full member of the Eurasian Economic Union, was able to use part of the freedoms of a common economic space, which in turn had a positive impact on the entire region and became a positive experience (which needs to be deeply analyzed and understood that the results can be many times better) for reorganization of the entire structure of the Kyrgyz economy.
- The agricultural production market in Kyrgyzstan is undergoing fundamental changes. In the country, there is a transformation from small-scale farming with low technical equipment to large farms and agricultural holdings that are capable of creating and promoting large volumes of dairy, meat, fruit and vegetable products on foreign markets. Only in 2017, an increase by US$17.3 million (70.7%) in imports from the Kyrgyz Republic to the Russian Federation was in the group of food products and agricultural raw materials.
- The increase in working people in Russia (750,000) and Kazakhstan (up to 125,000) from Kyrgyzstan allows maintaining social and political stability in the country. The social and legal protection of workers in the EAEU countries has also significantly increased; they have almost the same economic rights as the citizens of their countries of stay. More than 100,000 migrant workers from Kyrgyzstan are removed from the blacklists in the Russian Federation. Our compatriots have the opportunity to work legally, without the need to pass exams, to obtain a work permit or a patent. Diplomas of Kyrgyz universities are recognized throughout the EAEU, which means that Kyrgyz citizens, like citizens of these countries, can apply for jobs and the procedure for their employment is no different.”
- The first trade and logistics centers (TLC) are being established in the country, with all the necessary infrastructure. Now 4 large TLCs have already been commissioned and 11 more centers are at the planning and construction stage.
- As of the end of 2017 (according to the Ministry of Economy of the Kyrgyz Republic), the economy of Kyrgyzstan grew by 4.5%. Among the EAEU countries, Kyrgyzstan is second in this indicator. Exports excluding gold grew by more than 20%. Trade turnover with the EAEU countries amounted to US$2.4 billion. In 2017, the industry grew by 21% (excluding Kumtor). In the first 9 months of 2017, more than 4 thousand jobs were created at new enterprises.
- In 2017, in terms of industrial growth, Kyrgyzstan ranks first among the countries of the Eurasian Economic Union. The greatest success was demonstrated by the industries somehow connected with minerals. The volumes of extraction of metal ores increased dramatically (+ 400%).
The availability of such a positive experience can be useful for Central Asian countries in forming a common vision for the further development of the region. In my opinion, it is Uzbekistan that has enormous potential opportunities from close cooperation with the Russian Federation.
Today, Tajik businessmen buy a significant part of the Kyrgyz fruit, dry it and sell by larger wholesale to Russia and Kazakhstan. The establishment of a single agricultural holding in the region (with participation of at least the Republic of Uzbekistan, the Republic of Tajikistan and the Kyrgyz Republic) will allow to enlarge production, achieve higher standards of quality packaging, labeling and spend significant funds on marketing. It is necessary to take advantage of the opportunities. It is possible to export large quantities of fruit and vegetables to China through Kyrgyzstan. The fact is that the Kyrgyz Republic is the only country in Central Asia that has a “green corridor” agreement with the Celestial Kingdom. The Kyrgyz Republic cannot take advantage of this opportunity, since it does not have the necessary commodity volume, as well as sufficient financial resources for marketing in a very specific Chinese market. Cooperation, for example, with Uzbek businessmen would allow creating a single market and sending fruit and vegetables under the Kyrgyz brand to China or to the 180-million EAEU market. Indeed, in Uzbekistan today, hundreds of hectares are planted with apple-trees and cherry-trees, more uniformly and systematically at that.
Another story that is an extremely important issue in the formation of a single Central Asian policy is the formation of a unified policy regarding the largest neighbor, the second economy in the world - China.
China is a huge market, but only by forming uniform agricultural consortia among the Central Asian countries, it would be possible to massively sell their goods and services to this country with extremely specific taste preferences, high quality standards for external players when entering their market, with significant costs for marketing and for trade and logistic infrastructure.
Denis Berdakov, political scientist