A Need for Economic Transition for the Caucasus and Central Asia Along with Growing International Roles
Author: Meray Ozat
Jun 15, 2023
On June 8-9, Central Asia welcomed heads of multiple international organizations to the XIII Astana International Forum (AIF) in Astana, under the theme of “Tackling Challenges through Dialogue: Towards Cooperation, Development, and Progress.” Global leaders and international organizations from more than 100 countries participated in the forum, including the World Trade Organization (WTO), International Monetary Fund (IMF), and United Nations (UN), as well as high-level foreign government authorities such as the President of Kyrgyzstan and Emir of the State of Qatar. High-profile participation in the AIF demonstrated the growing international attention Central Asia is receiving. However, despite the growing focus on Central Asia, there are still several obstacles the region must overcome to solidify its economic security within the shifting geopolitical landscape.
A professor at McGill University, and a distinguished fellow at the Asia Pacific Foundation in Canada, Bart W. Édes, expressed that he is “impressed by the list of assembled heavyweight speakers, which will help to establish the forum as a significant yearly event for decision makers and policy influencers from Central Asia and globally.” According to Édes, an assembly of important world leaders like this “will help to establish the forum as a significant yearly event for decision makers and policy influencers from Central Asia and globally.”
During the forum, AIF speakers emphasized Central Asia’s important role in the Middle Corridor, an emerging trade corridor that connects Asia and Europe across the Caspian Sea. In 2022, cargo transportation through the Middle Corridor broke its new record which increased by 2.5 times reaching 1.5 million tons. Managing Director of China International Capital Corporation Global Institute Dr. Yang Zhao expressed that the role of Central Asia along the Middle Corridor is especially important for China’s Belt and Road Initiative (BRI) and China’s foreign policy.
Despite the increasing global attention on Central Asia, there are still several challenges that the region must deal with. With the theme of Cooperation, Development, and Progress, AIF discussed multiple development issues in the region. The forum speakers agreed that Central Asian countries should rethink their economic models in order to remain sustainable and competitive in the regional and international arena. The Director for Central Asia and Türkiye at the International Finance Corporation, Wiebke Schloemer, said the region should work on predictability, infrastructure, and cross-border security to show its resilience, attract more investors, and secure its geopolitical role. Along the same line, the Director-General of the WTO Dr. Ngozi Okonjo-Iweala said: “It is clear that the future of trade is services. It is digital, it is green, and it should be inclusive. That is my mantra.”
Energy and climate change was one of the primary topics of the forum with a focus on the energy transition toward green power. The main concern is the region's over-reliance on fossil fuels. Dependence on highly volatile natural resources can not only be detrimental to economic performance but also result in severe pollution and further deterioration of climate change in the region. The United Nations Development Programme (UNDP) representative Laura Altinger pointed out the same issue and called on the region to consider sustainable green energy resources instead of relying on natural resources.
In addition to the annual forum, Managing Director of the IMF Kristalina Georgieva also spoke at Nazarbayev University on June 8 with the theme, “The Golden Promise of Economic Reform in Caucasus and Central Asia.” In her speech, Georgieva reviewed IMF actions in the region and recommended a new model for regional development. According to Georgieva, Central Asia lies at the heart of the current global fragmentation after the Ukraine war, which makes the region more susceptible to the adverse impacts of the tension. Although the performance of Central Asia stayed stable during the war period in 2022, with an average regional GDP growth of 4.8%, dependence on unstable resources like fossil fuels will still yield potential risks for the future development of Central Asia. Therefore, “The best way to protect yourselves in a more shock-prone world is to foster more robust, sustainable, and inclusive growth,” Georgieva said.
Georgieva listed three areas of development for Central Asia, namely inclusion, private sector development, and climate change. Investment in human capital is the key to achieving inclusion, through improving education and developing social programs. Increased inclusion can better prepare society for structural changes, protect people who might suffer from the negative effects, and motivate the workforce. To revive the private sector, governments should reevaluate the extent of their involvement in the economy and loosen their control. Effective regulation of the economy, in turn, can stimulate confidence and growth in the private sector. The IMF research shows that such structural reforms can lead to positive development in the region by raising the total output by 5-7%.
Climate change seems to be the most critical and action-forcing challenge among the three discussed developments due to the high vulnerability of the region in tackling environmental issues. Climate change could result in a loss of 6.5% of Central Asia's annual output by 2060, according to IMF estimates. In addition to the recommendation presented during AIF to move to a low-carbon economy, Georgieva also stressed the need to foster regional cooperation and diversification of the economy by strengthening trade among the states in the region.
“Central Asia would greatly benefit from more economic integration within the region—which is even more important at a time when global trade routes face greater geopolitical risks,” Georgieva said. To foster this idea, IMF representatives opened the Caucasus, Central Asia, and Mongolia Regional Capacity Development Center (CCAMTAC) in Almaty on June 9 with a mission to strengthen IMF activities in the nine countries and build stronger policies and institutions that promote inclusive development.
Some Central Asian and Caucasus countries, like the Kyrgyz Republic, Tajikistan, and Armenia, have already taken action on transitioning to low-carbon economies in several industries by reducing energy subsidies and investing in green technologies. However, countries like Kazakhstan, which still heavily rely on fossil fuels, might encounter more challenges as global markets transition towards greener energy sources. Therefore, all the regional countries need to cooperate and develop more resilient, predictable, and non-oil industries to diversify their economies and attract investments.
The consensus reached among multiple international institutions drew the framework for the future of economic developments in the Caspian region. The series of recommendations made by various international actors also demonstrates the important roles that Caucasus and Central Asian countries play in not only regional economic security but also within the global framework of energy security. Therefore, with the growing global attention and assistance, the prospects of economic transition in the region can be promising. Yet, the transition is a complicated and lengthy process. To effectively achieve this goal, the Caucasus and Central Asian states should enhance their economic integration and, at the same time, build solidarity to mitigate the costs of geopolitical changes.