Reform was high on the agenda at the “Central Asia Investment Forum” organised by the Financial Times and European Bank for Reconstruction and Development (EBRD) that took place on February 18 at the Ritz hotel in Istanbul.

After an address by Turkey’s well-respected Deputy Prime Minister Mehmet Simsek about the institutional reforms his country had undergone and their effect on foreign investment, government and business representatives from Kazakhstan, Mongolia, Kyrgyzstan, Tajikistan and Turkmenistan vied to prove how advanced on the path to similar reforms their countries were, and how closely they were working together to solve the economic woes affecting the region.

Central Asia is working to turn the slump in commodity prices and the wave of currency devaluations across the region into an opportunity to improve the business environment, and to promote transparency, efficiency and diversified commercial relations, officials like the Rakhim Oshakbayev, the Kazakh vice-minister for investment and development, contended. “We want oil prices to stay below $30 a barrel so that we can carry on with our reforms,” he told bne IntelliNews in an interview on the sidelines of the conference, adding that his government is actively pursuing higher rankings in international indices for ease of doing business and competitiveness, and that different departments in his ministry are working on improving the areas covered by the World Bank’s “Doing Business” index. 

United we stand

Offering Turkey’s development as an example, Simsek expressed Ankara’s readiness to “provide all the support that it can” to Central Asia, but conveniently left out the fact that Turkey’s $10bn yearly trade with Central Asia consists largely of commodity imports and manufacturing exports, thus defeating the purpose of promoting economic diversification in the region about which Simsek also spoke. And diversification it needs, for the region’s reliance on hydrocarbons and minerals has increased in the last decade, with countries like Kazakhstan experiencing a growth in the share of hydrocarbons from 50% of total exports in 2000 to 75% in 2015.

Ali Kopruz, vice president of the Union of Chambers and Commodity Exchanges of Turkey (TOBB), made a better case for Turkish businesses in the region, which have helped funnel some $5bn worth of Turkish foreign direct investment (FDI) in sectors ranging from infrastructure to agriculture. Meanwhile, the 2,500-odd Turkish companies operating in Central Asia have also benefitted from the flurry of infrastructure investments, with Turkish contractors working on projects worth over $100bn.

In addition to Turkey, Chinese Investment was represented by Wang Dan, executive vice president of a $40bn fund called the Silk Road Fund that Beijing set up in December to finance infrastructure projects related to its “One Belt, One Way” transport corridor through Central Asia and the Caucasus to Europe.

Meanwhile Russia, Central Asia’s largest commercial partner, was notably absent from panels and speeches alike. The Kremlin was, however, indirectly invoked when Aidai Kurmanova, state secretary at the Kyrgyz economy ministry, spoke about the Russia-led Eurasian Economic Union (EEU). Despite the bloc’s poor performance in its first year, Kurmanova said that Bishkek was confident about its decision to join the EEU. “If we hadn’t [joined], we would be worse off,” she admitted, while calling for the region to come together under one brand to attract foreign investment and to promote trade. “Everybody knows our food is free of pesticides, we could promote a Central Asian organic food brand.”

Oshakbayev seconded her, saying: “In order for our businesses to prosper, they need access to markets.” And the EEU with its 180mn consumers is as good a market as any.

But not everyone was as convinced about the EEU’s prospects as member countries Kyrgyzstan and Kazakhstan. Jamoliddin Nuraliev, first deputy chairman of the National Bank of Tajikistan, told bne IntelliNews that Dushanbe is in two minds about joining the bloc. “We will remain an observer country, there is no clear intention yet to join the EEU. Besides, we just joined the World Trade Organisation, which is a parallel structure.”

Beyond commodities

“There is so much untapped potential in sectors like agriculture, construction and tourism in Kyrgyzstan. Every corner of our country could be turned into a tourist destination. For industry, we have set up industrial parks,” Karimova said passionately, adding that her government was taking the private sector’s interests into account when making policy decisions and is actively pursuing foreign investment by changing legislation to allow for public-private partnerships (PPPs) in the sectors that she listed.

Meanwhile, an entire panel dedicated to the New Silk Road, the transport corridor connecting China to Western Europe through Central Asia, discussed the opportunities that the corridor would open up for Central Asia. Kazakhstan, the largest beneficiary of the project to date, has already seen a 1mn tonne increase in its cargo transport from China in 2015 and the creation of 350,000 jobs related to the corridor. The rail and road link is bound to help Astana in achieving its goal of attracting $9bn in FDI from international financial institutions (IFIs) by 2018, especially since the Silk Road Fund just devoted its first investment of $2bn to a Kazakhstan-China investment fund.

With the Kazakh portion of the Western China-Western Europe almost completed, Astana is looking to expand its railway infrastructure, Oshakbayev said, and is seeking to increase efficiency in the transport sector by privatising its railway company, Kazakhstan Temir Zholy. As for the commodity bust, Oshakbayev contends that it has had some positive side effects on Kazakhstan. Not only has it given a sense of urgency to Astana’s reform drive, but it has decreased labour costs in Kazakhstan “below those in Kyrgyzstan, Russia and China”, making the country more attractive to foreign investors.

One thing that all speakers agreed on was the benefits of working together with IFIs, and with host EBRD in particular, to achieve their economic goals. “While Tajikistan could tap into other sources of lending like the Chinese government, which come with no strings attached, IFIs bring to the table know-how and capacity building in addition to financing,” Nuraliev opined, while expressing his government’s hope that a $70mn road project receive financing from the EBRD and the Asian Infrastructure Investment Bank (AIIB) in the near future.

In turn, the EBRD’s president, Sir Suma Chakrabarti, reassured participants that his bank would continue its bullish investment strategy in the region. After a record year in 2015, when it invested some $1.4bn in Central Asia, the EBRD will continue to pursue financing of small and medium-sized enterprises in Kazakhstan, and Turkmenistan, as well as projects in agriculture, banking, telecommunications, energy efficiency and climate change mitigation across the region.