Intheblack: Getting Central Asia moving

Intheblack magazine, July 2010

In late May, Juan Miranda was in the Afghan town of Mazar-e-Sharif, attending the inauguration of Afghanistan’s first railway. As Director General of the Central and West Asia Department of the Asian Development Bank, Miranda had been involved in the funding and development of this railway, a vital 75-kilometre link to the border with Uzbekistan and the international railway networks beyond. But as he stepped back to take a photo of the train moving slowly backwards and forwards on the tracks, he noticed a huge transmission line in the back of a shot, and a road behind it. He realised he had been involved in the development of all three.

When you are a multilateral banker in this part of the world, the work can be tough, but when it works out there’s the joy of seeing a tangible difference being made. And Miranda’s patch of Asia is all about high challenge and high reward. His department operates in 10 countries most of which few people could successfully locate on a map (and, if they could, it would be for all the wrong reasons): Afghanistan, Armenia, Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Pakistan, Tajikistan, Turkmenistan and Uzbekistan. It is a patchwork of mostly landlocked countries with sometimes random borders, stubborn bureaucracy, limited commercial laws, dominated by mountains and deserts, into which Miranda must coax international private capital to invest.

The challenge is not just about getting foreigners to come in, but to get these disparate nations to work together too. One might expect the former Soviet states to be kindred spirits, but that’s often far from the truth. “After independence from the Soviet Union, these countries embraced sovereignty like you and I would a long lost brother,” Miranda says. “But as a result of that they created economic structures that were directed towards self-sufficiency and putting up borders.” The ADB is one of six multilaterals that backs the Central Asia Regional Economic Cooperation (CAREC) programme, which seeks to improve efficiencies between Central Asian nations, focusing on connectivity, energy security and trade facilitation. “The nearest port to some of these countries is 2,000 kilometres away,” he says. “Unless people can move from point A to point B efficiently, you’re not going to be very competitive.”

Miranda, CAREC and the ADB have focused their energies on transportation, and have devised six transport corridors, some north-south through Afghanistan and into Pakistan, others traversing Kazakhstan from east to west to link Europe and China. And this speaks to an advantage Central Asia does have: being in the way, separating Europe and China. Becoming an efficient conduit for goods between these states will be to Central Asia’s benefit, and will cement a shift away from reliance on Russia and towards greater integration with China. Other less visible things are no less important: trade facilitation, such as removing tariffs and speeding up the flow of goods across borders, is crucial to the ADB realising its ambition of doubling per capita income within the region within a decade, pulling poverty down from 40% to 25% in the process.

The good news is that when something works, it really has an impact. That transmission line in the back of Miranda’s photo in Afghanistan runs from Uzbekistan to Kabul, and supplies it with constant electricity for the first time. “Delivering electricity 24 hours a day instead of two hours a day is a transformation,” he says. “It’s not a solution in itself, but it’s a means to an end.” By this he means that helping with infrastructure makes it a little easier for Afghanistan to find its footing as a country. “Optimism is something that can come and go, but we have to let it be with us,” he says. “You’ve got to wake up in the morning thinking that you’re doing good. The task is not for the faint-hearted and the security aspects are not getting any easier but I am optimistic this resilient country, these resilient people, can put things together.”

“The political differences between groups across the country are clear, but one thing that binds them together is to reconstruct the nation, and to do that you need development,” he says. “We are part of that agenda, to do projects that will make a little difference to the country.”

Elsewhere in Central Asia, the ADB has been making gradual headway. Talking to IntheBlack at the ADB’s annual meeting in Tashkent, Uzbekistan in May – the first time the bank had held its meeting in Central Asia – Miranda bemoaned the lack of a landmark public-private deal that would get the region truly noticed. “We haven’t had in Central Asia the unique transaction that says: the future looks like this,” he says. “If one happens, we’ve created a message. We convey an opportunity to the international investment community that this place is open for business.”

A month later, over the phone in the ADB’s Manila headquarters, he is able to suggest that such a deal is finally close to the finish line. The $3.2 billion Surgil project in Uzbekistan will involve the construction of a petrochemical plant with a production capacity of more than 500,000 tons of polypropylene and polyethylene, made by converting gas deposits. It will be structured as a PPP (a public-private partnership) and will combine a number of foreign investors – who have not yet gone public in their involvement – with the Uzbek state oil and gas company, with the management and the exports run by international shareholders. “In turning gas into chemicals it moves a commodity into a value-added product with an international market ready-made,” Miranda says. “If it works well, instead of just exporting their gas they can get foreign investment into the country and generate jobs.”

Getting foreigners in requires more than just a visible opportunity. What’s also lacking is the legal infrastructure to protect and encourage an investor. “In Central Asia we have the big ticket projects waiting for the private sector to invest, but unlike other parts of Asia the upstream work lags behind,” he says. There are places where concession laws do exist – Kazakhstan has gone so far as to build a dedicated PPP unit within its government and has an approved list of projects for it to pursue – but few foreigners have so far been willing to jump in. “There is a comfort zone that is not that huge here, and we need to expand that comfort zone.”

Uzbek landmarks apart, he thinks it’s important to be reasonable in expectations. “Would you be able to have an all-singing, all-dancing concession and BOT [build-operate-transfer, the classic public-private model in more developed markets]? Maybe not right now. Maybe you go in more realistically and expect a management contract to start with. If you go from zero to something that’s no longer zero, that still represents success.”

Miranda himself, who is Spanish-born and English educated with a degree in agricultural economics from Reading University, first visited Central Asia in 1992 after the Soviet Union was dismantled. Back then he was working at the European Bank for Reconstruction and Development. When he took over his current department for the ADB in 2006, he felt that he had “a longer memory of the region” thanks to his earlier role, and he remembered its potential. “They have the things that everybody should want: a growing market, investment opportunities for regional and international players, and an area strategically as important as most. It is an area with rich traditions but is landlocked and needs to be integrated into the world economic system.”

Miranda’s career has involved plenty of private sector work between the multilaterals: at once stage he set up and managed his own project finance boutique investment bank that he later sold to Morgan Stanley, becoming a senior executive at the US powerhouse as well as a stint in a Spanish investment bank. People who have sold their own banks to Morgan Stanley don’t generally need more money, and one suspects he is drawn to this ADB role, with its dismal flights and endless visa queues, out of a sense of duty. “Central Asia has the importance and that thrill where things are yet to be done,” he says. “As a development bank we like to be involved with change.”

And, once in a while, there’s a visible reward. That Afghan railway, the first in the country’s history, built across unforgiving topography in a nation at war? It was finished ahead of schedule.

BOX: Out of Hours

What are your interests?

Lots of them – music, sports; I play golf well enough to beat most of my colleagues. I like classical and jazz music and I like to watch football – I’m a long-standing fan of a team called Deportivo La Coruna. I’m happy to report to you that we beat Manchester United twice.

What words do you live by?

Accountability and responsibility.

What keeps you awake at night?

The happiness and health of my healthy and happy children.

What are you reading?

Henry Kamen’s Spanish Empire. It argues that the empire could well have been the first big example of globalization and outsourcing!