The World Bank encourages Central Asian republics to diversify exports and expand trade by facilitating access to markets

December 14, 2010

DUSHANBE, December 14, 2010 – The World Bank has today presented in Dushanbe its new report titled “Central Asia: Expanding Trade by Connecting with Markets”. The study covers three countries of Central Asia: Kazakhstan, Kyrgyz Republic and Tajikistan, who agreed to take part in it. The findings of the study however may also be relevant for other countries in the Central Asia region.

The report notes that all five countries of Central Asia significantly expanded trade since their transition with exports equaling to almost USD 70 million in 2003 to 2008 albeit from a primarily narrow range: mineral fuel and metal products for Kazakhstan, cotton and aluminum products for Tajikistan, and mineral fuels for Turkmenistan. Only in the Kyrgyz Republic and Uzbekistan 80 percent of their exports accounted for three or more sectors.

The report therefore signals the need for Central Asia countries to diversify their export bases. To attain productivity that is vital for the future economic growth and development of the region, the report calls on countries to diversity products and exports, and to develop their markets that will eventually facilitate transformation from agriculture to industry and services. The report recommends Kazakhstan, Kyrgyz Republic and Tajikistan to build their export-diversification policies on three spatial levels: urban (leading city), area (city-hinterland), and regional (integration with regional markets).

On the urban level, the recommendation is to promote more open and competitive environments, and foster agglomeration. The advice for policy makers is to focus on two major cities in each country and explore various possibilities there, including the creation of Special Economic Zones or Industrial/Export Processing Zones.

On the area level, it is proposed to improve connections and mobility between leading cities and immediate agricultural hinterlands that is expected to provide sound basis for developing agro-industrial activities within the country.

On the regional level, the study notes that investments and policy actions are needed to better integrate regional markets by reducing transport costs and time to reach key regional markets. The first step in this direction, according to the report, should be the investment into and modernization of the north-south road corridor, which connects the cities of Dushanbe, Khujand, Osh, Bishkek, Almaty, and Astana to the Tajik-Afghan border at Nijniy Pyanj in the south of Tajikistan, and to the Kazakh-Russian border at Petropavlovsk in northern Kazakhstan. Another important step would be to improve policies and agreements on trade and transit facilitation at border crossings connecting with the markets.

“As the Central Asian countries struggle to cope with the short-term challenges of the current global crisis, there is a need to think strategically about how to strengthen their export competitiveness in the medium- to long-term as the world economy recovers,” said Souleymane Coulibaly, the World Bank’s Senior Economist for South Caucasus and Central Asia, and one of the leading authors of the report. “The analysis is prescriptive, offering a set of policy measures along several dimensions that would help diversify exports. It recommends focusing on the two leading cities – Almaty and Astana in Kazakhstan, Bishkek and Osh in the Kyrgyz Republic, and Dushanbe and Khujand in Tajikistan – connecting these leading cities with their agricultural hinterland to unleash the potential of the region’s agriculture-related activities, and improving the connections between the leading cities and major regional markets, such as China, India, Russia, and Turkey, along a north-south road corridor.”

The report identified two major production capacity constraints for the growth and diversification of exports based on non-natural resources in the leading cities: (1) poor backbone services and infrastructure, such as expensive financial services,  unreliable power supply, and limited or unaffordable telecommunications services; and (2) inadequate business environment, such as unjustified administrative barriers, poor public services including taxation issues, and excessive involvement of political elites in business hindering competition. In terms of market connectivity, two major constraints were identified as well: (1) inadequate transport and logistics services, and (2) challenges to international transit.

Building on the experience of South Asia, the report suggests to anchor the strategy for growth and diversification on three major principles: start small, to maintain coordination challenges at a manageable level; think global, to reach a larger market instead of seeing neighbors as competitors; and help the less advanced parts of the production network to secure quality, quantity, and timely intermediate and final products.

It is proposed that overall policies should be made by the stakeholder group, to consist of high-level officials in Kazakhstan, the Kyrgyz Republic, and Tajikistan who are involved in regulating trade and transport facilitation activities. Working groups in each country should consist of national implementation committees designed as problem-solving sub-groups with operational procedures to encourage flexibility and responsiveness and ensure public-private interaction at all levels.

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