Persuading Central Asia to pull down borders

IFR Asia, ADB report, May 2010

If you want to get a sense of the challenges facing Central Asian trade, take a look at a map. Landlocked countries, some of them with at least two other nations between them and the sea in any direction; harsh terrain; and intricate, apparently random Soviet-era borders, often drawn without regard for communities or trade routes. “The nearest port to some of these countries is 2,000 kilometres away,” says Juan Miranda, Director General of the Central and West Asian Department at the Asian Development Bank. “Unless people can move from point A to point B efficiently, you’re not going to be very competitive.”

The CAREC programme – for Central Asia Regional Economic Cooperation – aims to help create this efficiency. It includes eight countries – from Azerbaijan in the Caucuses, across Kazakhstan, Kyrgyzstan, Uzbekistan and Tajikistan, plus Afghanistan to the south and Mongolia and China to the east – and is backed by six multilaterals, including the Asian Development Bank, which serves as secretariat to the CAREC Institute. “The programme aspires to find ways for countries in the region to work together for the good of all,” Miranda says. Specifically, it tries to work in three main areas: connectivity; energy security; and trade facilitation.

Part of the challenge is historical, Miranda explains. “After independence from the Soviet Union, these countries embraced sovereignty like you and I would a long lost brother,” he says. “But as a result of that they created economic structures that were directed towards self-sufficiency and putting up borders – economic borders. CAREC is about doing away with those.”

The most practical illustration of this is in building roads to enable goods to move. And here, the region does have one geographic advantage: it’s in the way. It separates the powerful blocs of Europe and East Asia, and if it can become an efficient conduit for the goods moving from one region to the other, then Central Asia should benefit.

The program spent more than US$2.5 billion on the transportation field alone last year. It envisages six transport corridors: one traverses Kazakhstan to link Europe and China; another links East Asia to the Mediterranean through the Caucuses; others go north-south, connecting the region through Afghanistan and Pakistan. It’s not all roads: the program is backing a rail link between Hairatan, on the Uzbekistan border, and Mazar-e-Sharif in Afghanistan. Here, an Uzbek company – the national rail utility, Uzbekistan Temir Yullari – is handling the construction in Afghanistan in exactly the sort of regional cooperation the ADB wants to see more of.

The program’s ambitions on energy embrace security, efficiency and trade. The idea here is to ensure balanced development of energy infrastructure and institutions in the region, with better integration of energy markets themselves. An example is a new transmission line from Uzbekistan to Kabul. “Today, it supplies Kabul with 24 hours of electricity a day,” Miranda says. “Ten months ago if you went to Kabul you would only get two hours a day. It has been transformational: it has helped business and people.”

Trade facilitation, while less visible than a road or a power station, may prove to be the most important of all, and the toughest to effect. If it works, some of the ADB’s grander ambitions – that increased regional cooperation could double per capita income in the region within a decade, and pull poverty down from 40% to 25% in the process – become realistic. “Cross-border activity is critical,” Miranda says, “especially when many countries are landlocked.” He estimates that within the next 10 years five to 10 per cent of Eurasian trade will take place through the various corridors the program is working on – but that’s only going to work if, to go with the new roads, there are streamlined border and customs processes to go with it. “We cannot only focus on the hard infrastructure: the roads being safe and well paved and maintained. We also have to focus on border arrangements so there are fewer delays on the borders. At the moment it takes too many days; we have to bring it down to several hours.”

Getting the cross-border side going requires not only cooperation but trust. “We have to build confidence between the countries again,” Miranda says. Efforts in this area include customs reforms and modernisation, such as harmonised and simplified procedures and automated systems; and integrated trade facilitation, with the adoption of a single window scheme to streamline transport, trade logistics and customs. There will also need to be reforms to create sound legal frameworks and regulatory environments in order to give the private sector confidence to come in and invest.

When IFR Asia spoke to Miranda Kyrgyzstan was in the headlines following the coup there, but in fact – Afghanistan apart – the region has been reasonably peaceful. “We’re very sorry to see the events in Kyrgyzstan but we haven’t generally had political instability – in fact there has been considerable stability,” he says. He hopes it won’t put off investment and that people will be able to distinguish one market from another. “Many countries are opening up and looking for investors and financiers,” he says. “The investment requirement is high and the opportunity is high.”