Unlocking Central Asia: Fostering the Growth of a Region in Transition

Article excerpt

Amply endowed with natural resources but handicapped by its landlocked situation, Central Asia has experienced unparalleled growth rates over the past ten years. The exploitation of" these resources and the investments that have been made, often with the help of foreign capital, provide the basis for this paradigm of growth and productivity. However, many challenges including economic diversification and private sector development hamper future growth prospects.

Abundant Resources in a Landlocked Region

The existence of oil deposits is a major factor in the distribution of wealth among the Central Asian republics. While on one hand Kazakhstan and Turkmenistan, and to a lesser extent Uzbekistan, have major reserves of fossil fuels, on the other, Tajikistan and Kyrgyzstan have no oil and gas reserves at all. This difference can be seen in national economic indicators. In 2009, Kazakhstan's GDI per capita in purchasing power parity (PPP) was more than US$10,000, five times greater than that of Kyrgyzstan or Tajikistan. Besides oil and gas deposits in the Caspian Sea, Central Asia also has abundant natural resources. Gold deposits in Kyrgyzstan account for 15 percent of its GDP. Tajikistan has significant hydroelectric potential, and Uzbekistan is one of the world's leading exporters of cotton, though its gold deposits could potentially make it a major gold-exporting country. Kazakhstan is richly endowed with natural resources: a major exporter of wheat and flour, the country also has large deposits of precious metals such as chromium, zinc, lead, and uranium.

What these countries have in common is their geographical location, which is both a disadvantage and a source of opportunity. Being landlocked is first a disadvantage in that many countries have low population densities. Difficult climate also tends to increase the transaction costs associated with trade such as the costs of crossing borders (time spent in customs, possible corruption, the unpredictability of delivery dates, etc.) as well as costs of transport and storage. It is secondly a source of opportunity in that Central Asia lies mid-way between Asia and Kurope and could therefore serve as a transit zone and logistics platform for trade between the two continents. Overcoming the problems arising from being landlocked is key to the future success of the region.

The key limitations implied by this geographical situation is high transportation cost, waste due to lack of 'cold1 supply chains in the agro-business sector, and most importantly, slower pace in development of sub-national regions due to high cost of infrastructure. The creation of transnational transport infrastructure and the elimination of red tape at border crossings within the region call for close cooperation among the countries in the region, which could use improvement. A key to addressing this challenge and improving the competitiveness of the region is also tapping into the potential of its neighbours. Although land-locked, Central Asia is also surrounded by some of the world's fastest-growing and most dynamic economies, including three of the BRICs (Russia, India and China). Recognizing the importance of being further connected to their fast-growing neighbours. Central Asian policy makers have embarked on a number of initiatives. One example is the Central Asia-China gas pipeline, which was launched in 2003 and is set to become the first pipeline to bring Central Asian natural gas to China. It connects Turkmenistan, Uzbekistan, Kazakhstan, and China.

A Natural Resource-Driven Growth Model

Over the past ten years, the economic growth rates of Central Asian countries have reached record levels for a variety of reasons, including high prices commanded by raw materials in world markets and relative macroeco-nomic stability, with single-and sometimes double-digit inflation compared to the much higher levels reported in the 1990s; for the poorest states in the area (Tajikistan and Kirghizstan), remittances of earnings by emigrant workers in Russia as well as financial aid from abroad have played a major role. …