Central Asia: A New Hub of Global Integration

Central Asia has assumed a new role in the era of globalization: During the 19th Century the imperial powers Great Britain and Russia saw the region as the prize of their “Great Game”; during the 20th Century it was the backyard of the Soviet Union, neglected by the rest of the world; today it is the hub of economic integration of the super-continent of Eurasia, home to the most rapidly growing economies of the globe. Johannes Linn, Brookings Scholar and Special Adviser to the Central Asia Regional Economic Cooperation Program (CAREC), explains what a recent spate of high-level meetings mean for the future of Central Asia, Eurasia and the rest of the world.

During a six-week span in the months of October and November 2007 a number of high-level meetings and conferences focused on Central Asia. They signify a renewed international interest in this region. While during the 19th Century it was the object of the “Great Game” among the imperial powers of Great Britain and Russia, during the 20th Century it was ignored as a distant landlocked region, largely inaccessible and irrelevant to global events during the rise of the Soviet Union and during the Cold War.

The opening up of China in the 1980s and the breakup of the Soviet Union in the early1990s, followed by the shockwaves of September 11, 2001 and the subsequent wars in Afghanistan and Iraq changed all that: Central Asia, with its proximity to neighboring Afghanistan, Iran and Pakistan and to Iraq, has gained attention in the geopolitical efforts to contain the “arc of instability” from the Middle East to South Asia. Less obvious, perhaps, but no less important, Central Asia lies at the core of the Eurasian super-continent, the most dynamic part of today’s global economy. Surrounded by rapidly growing China, India and Russia, Central Asia is a potential transit hub for the rapidly expanding transcontinental Eurasian trade and capital flows. Moreover it is the repository of large energy and mineral resources and home to a large and well educated population – 60 million people in the five former Soviet republics of Central Asia, or 123 million, if one adds Afghanistan, Azerbaijan, Mongolia and Xinjian Uyghur Autonomous Region of China to encompass the natural geographic boundaries of today’s Central Asia.

With the region’s great natural and human resources and its central location in the rapidly integrating Eurasian economic space, all neighboring countries, but also Europe and the US, share a common interest in seeing Central Asia develop as a stable and prosperous group of countries. But interests also diverge. For example, intense attention is now focused on developing and creating access to the energy resources of the region, especially the oil and gas reserves of the Caspian Basin. Russia is interested in maintaining its transport monopoly and preferential access to Central Asia’s oil and gas. Europe and the US want to see more diversified energy transport routes towards the west through Azerbaijan, Georgia and Turkey. China is looking to develop the pipeline infrastructure towards the east, and India and Pakistan are eager to tap Central Asia’s energy resources towards the south. Central Asian countries compete for limited water resources as upstream countries (Kyrgyz Republic and Tajikistan) want to develop their headwaters for hydro power, while downstream countries (Kazakhstan, Turkmenistan and Uzbekistan) want to ensure maximum use of water for their vast irrigation schemes.

Energy and water have been the traditional focal point of cooperation and competition among the countries of Central Asia. But for the long-term development of the region it is no less important that they develop the infrastructure and the institutional capacity to facilitate non-energy transport and trade among countries within the region and with their big neighbors. The potential payoff is dramatic: With improved transport infrastructure and trade facilitation, the transport cost and times to major sea ports from Central Asia could be halved, and the region’s GDP could be doubled, according to estimates by the Asian Development Bank and the UNDP. Of course, here, too, there can be diverging interests, as countries compete for serving as principal transit corridors and the associated economic benefits. The recent efforts by Russia to get the German airline Lufthansa to shift its transshipment facilities from Kazakhstan to Siberia are a case in point.

The challenge for the countries of Central Asia, for their big neighbors and for Europe and the US is to create the regional institutions that will permit the mediation of competing interests among the countries in the region. Regional agreements on resource sharing need to be developed, regulatory frameworks for energy and non-energy transport and trade need to be put in place, and the financial resources for major infrastructure investments need to be mobilized. Over the last 15 years, since the breakup of the Soviet Union, some progress has been made in developing this institutional infrastructure, as a number of regional organizations have been set up with overlapping membership and mandates, including the Eurasian Economic Community (EurasEC), the Economic Cooperation Organization (ECO), the Shanghai Cooperation Organization (SCO), the Special Program for the Economies of Central Asia (SPECA) and the Central Asia Regional Economic Cooperation Program (CAREC). During October and November 2007 a slew of meetings of these organizations took place as well as a number of conferences addressing regional cooperation and integration. Seen in their totality they offer a good opportunity to take stock of the current state of regional cooperation in Central Asia.

On October 6, 2007, the heads of state of EurasEC met in Dushanbe, capital of Tajikistan. Encompassing Russia, Belarus, Kazakhstan, Kyrgyz Republic, Tajikistan and Uzbekistan, EurasEC aims to create an integrated economic space from Minsk to Dushanbe. The October summit decided on setting up a customs union and signed documents establishing the relevant legal foundation. As currently envisaged, the customs union will initially encompass Belarus, Kazakhstan and Russia, to be followed eventually by the other members of the group. The past track record of EurasEC and its precursor organizations justifies skepticism about the prospects for an early implementation of this decision. But the rapid start-up of the Eurasian Development Bank – created by Russia and Kazakhstan in January 2006, with a subscribed capital of $1.5 billion and a mandate to lend for infrastructure and private sector development in Central Asia – adds a new dimension to the instruments which EurasEC has at its disposal to support the development and integration of its member states.

On October 20, the Council of Ministers of ECO met in Herat, Afghanistan, for their 17th annual meeting. Afghanistan, Azerbaijan, Iran, Kazakhstan, Kyrgyz Republic, Pakistan, Tajikistan, Turkey, Turkmenistan and Turkmenistan are members of ECO. The meeting of ministers discussed plans for regional transport and energy infrastructure, for improvements in the enabling environment for business and for the establishment of a free trade area by 2015.

On November 2, the prime ministers of SCO met in Tashkent, capital of Uzbekistan. Set up in 1990s as an organization focused on cooperation for regional security among its members – China, Kazakhstan, Kyrgyz Republic, Russia, Tajikistan and Uzbekistan – SCO has more recently admitted other countries as observers, including India, Iran, Mongolia and Pakistan, and has begun to focus also on economic cooperation. Following on the August 2007 SCO summit in Kyrgyz Republic the November meeting of prime ministers reaffirmed the group’s intention to set up an “energy club”, designed to foster cooperation among the member countries in the critical energy area, to promote cooperation in customs, agriculture, culture and science and technology, and to focus on implementation of large-scale investment projects, particularly in transport and infrastructure.

A day later, on November 3, 2007, CAREC held its 6th annual Ministerial Conference in Dushanbe. CAREC’s membership encompasses Afghanistan, Azerbaijan, China, Kazakhstan, Kyrgyz Republic, Mongolia, Tajikistan and Uzbekistan, as well as six multilateral institutions (Asian Development Bank, European Bank for Reconstruction and Development, International Monetary Fund, Islamic Development Bank, United Nations Development Program and the World Bank). CAREC is focused on economic cooperation among its participants in the areas of transport, trade and energy. At the November meeting ministers approved a transport and trade facilitation strategy which foresees investments to improve transport and trade along six priority corridors linking countries within the region as well as with the rest of Eurasia. The strategy has identified more than 100 investment and technical assistance activities totaling about $ 20 billion over the next ten years. Ministers further reviewed progress with the preparation of a CAREC energy strategy and approved the setting up of a CAREC Institute to support training, research and outreach activities on regional cooperation and integration. Ministers also supported increased cooperation with other regional organizations (especially EurasEC and SCO) and with other development partners.

On November 13 and 14 the German government hosted two events in Berlin: a ministerial level meeting for representatives of Central Asia, of the Europe Union and of international organizations, focusing on the implementation of the European Union’s new Central Asia strategy (which was approved in June 2007); and a meeting of SPECA’s Governing Council. SPECA’s members are Afghanistan, Azerbaijan, Kazakhstan, Kyrgyz Republic, Tajikistan and Uzbekistan. The latter meeting reviewed progress with SPECA’s support for regional cooperation in trade, transport, water, environment, social development and statistics.

Finally, three specialized conferences on energy and transport in Central Asia took place during October and November: On October 22 and 23, the Carnegie Endowment for Peace and the Wolfensohn Center for Development at Brookings (with the support of the Asian Development Bank) hosted a conference in Washington, DC, on energy and transport integration in Central Asia, taking stock of the most recent plans for investment in these sectors by public and private national and international investors. On October 23 and 24 the Organization for Security and Cooperation in Europe (OSCE) hosted a conference in Dushanbe on the prospects for the development of trans-Asian and Eurasian transportation through Central Asia. In their joint statement the delegations of Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan and Mongolia participating in the conference reaffirmed their intention to cooperate in creating effective transport and transit conditions in Central Asia. And on November 15 and 16 the 3rd Conference of the Central Asia South Asia Regional Electricity Market (CASAREM) was held in Kabul. The principal topic of this conference was the CASA 1000 transmission project, designed to build the transmission capacity for 1300 MW of electricity from Kyrgyz Republic and Tajikistan to Afghanistan (300 MW) and Pakistan (1000 MW). At the conference the four participating countries signed a memorandum of understanding (MOU) which confirms key agreements on the alignment, management and financing of this important project. Completion of the transmission line will permit the development of Central Asia’s abundant hydro-power resources by providing access to the rapidly growing energy markets of the South Asia. The project is being actively supported by various international partners, including the Asian Development Bank, the World Bank Group and the United States.

These meetings, all taking place within a six week period in Central Asia, Europe and the US, reflect vividly the current intense interest in Central Asian regional development and cooperation. If one adds the many bilateral meetings at the level of heads of state (among them recent visits by Kazakhstan’s President to Kyrgyz Republic, Tajikistan and Turkmenistan, by Uzbekistan’s President to Turkmenistan, by Turkmenistan’s President to Brussels, by the Chinese Premier’s visit to Central Asian countries, and by Russia’s President to Tajikistan), the current level of attention to Central Asian matters by key players is striking.

The main question then is what all these meetings add up to. None of the events on their own resulted in a great leap forward – perhaps with the exception of the agreement on the six regional transport corridors at the CAREC 6th Ministerial Conference and the MOU of the CASAREM meeting. But seen in their totality these meetings reveal an important pattern of progress and change which justifies some optimism that Central Asian countries are beginning to come together among themselves and with the key external players in a constructive and productive manner to forge a modicum of trust and cooperative spirit, to develop the necessary institutional infrastructure for regional cooperation and to plan and mobilize the resources needed for key trans-border investments in energy and transport. Here are some of the key dimensions of progress:

First, it is notable that much of the attention is currently focused on the economic opportunities and development of Central Asia, rather than on geopolitical and security concerns. Although the topic of oil and gas resources dominate the news, much attention of policy makers and experts is now also focused on non-energy trade and transport development, and on the development of the region’s hydro-power resources.

Second, the meetings not only encompassed high-level diplomatic exchanges for dialogue, for trust building and for broad political agreements, but also involved specific agreements on sectoral strategies, institutions and investments. This is a major change from even three or four years ago, when such specific agreements were largely missing.

Third, there are growing links among regional organizations. On October 4, 2007, a first meeting of the Secretariats of EurasEC, SCO, CAREC and SPECA took place in Istanbul which resulted in an agreement to exchange information and develop relations at the technical level which will make it possible to avoid duplication and ensure consistency of programs. ECO, which also had been invited but could not attend, is expected to join future coordination efforts. Clearly, one of the big challenges for the future is to ensure that the regional organizations with overlapping memberships and mandates find effective ways to cooperate among themselves.

Fourth, while an overall umbrella framework is so far missing that would bring together all key interested players around one table at a time, the recent decision by CAREC ministers at their Dushanbe conference to explore the setting up of a Development Partners’ Forum may represent a step forward. Such a forum would bring together the countries of Central Asia, their big neighbors and key development partners, such as the EU, Germany, Japan, Switzerland and the US, to assure greater cooperation and coordination among all of them as a way to ensure the effective integration of Central Asia into the dynamic Eurasian economy and thus provide the key conditions for a stable and prosperous development of this key region.

Much remains to be done to convert good intentions into action, to forge cooperative solutions in the energy sector, to improve transport, transit and trade conditions in the region, and to create effective institutions for regional cooperation. Successful regional cooperation schemes, such as the Greater Mekong Subregion Program, have demonstrated that time and patience are required for this to happen. Central Asia has the benefit of experiencing rapid economic growth at this time and of being at the heart of a rapidly integrating and highly dynamic Eurasian continental economy. With effective leadership from within the region and with ready support from neighbors and development partners it should be possible for Central Asian countries to move forward in achieving the economic integration with each other, with their neighbors and with the rest of the global economy that will help them sustain their strong recovery, improve their economic welfare in the long term and produce a stable and prosperous hub at the center of the Eurasian super-continent.