Tide could turn for Eurasian integration

By bne IntelliNews February 15, 2010

Clare Nuttall in Almaty -

Over the last decade, links between the states of the former Soviet Union have gradually fallen apart in many areas, from trade to macroeconomic integration to energy markets, and the fragmentation accelerated when the international economic crisis caused trade flows and investments to diminish. However, several large-scale regional initiatives have created an impetus for re-integration, according to a study by the Eurasian Development Bank.

The EDB tracked integration between the CIS-12 (the 11 Commonwealth of Independent States plus former member Georgia) over a 10-year period. It used a variety of indicators in the areas of market integration, convergence of economic systems and institutional cooperation.

The study found that regional integration had decreased on most counts (see graph). The level of integration in the sphere of trade, energy and agriculture decreased, while divergence between macro-economic systems had increased. Only in the areas of labour migration and education had integration risen. In terms of institutional integration, the most integrated areas were transport, followed by collective security, and trade and investment.

By 2008, almost all the post-Soviet countries were less integrated with other countries in the region than in 2002, although there had been an increase in integration between sub-regional groupings, the EurAsEC-5 (Russia, Kazakhstan, Kyrgyzstan, Belarus and Tajikistan) and in particular the EurAsEC-3 (Russia, Kazakhstan and Belarus).

In general, the larger the countries are, the least integrated they are with others in the region. For Russia, Ukraine and Azerbaijan in particular, the level of integration with the CIS region was insignificant, partly due to their greater participation in the global energy markets. The leaders of integration in the post-Soviet space were the smaller countries - Armenia, Kyrygzstan and Tajikistan. "Against the background of fragmentation, there have been some bright spots, that is the relationship within certain sub-regions, especially EurAsEC-3, Russia, Kazakhstan and Belarus," Evgeny Vinokurov, head of the EDB's economic analysis division, told a press briefing in Almaty. "Regional cores have emerged, forming a focal point for integration: Russia and to a lesser extent Kazakhstan. In our opinion, the process of fragmentation is continuing across the whole region. But on a brighter note there has been an important process of crystallization around the regional cores."

Overall, the importance of trade links between the countries of the region has declined. The countries most integrated with the CIS-12 were Belarus, Kyrgyzstan, Tajikistan and Moldova. Azerbaijan and Russia's integration with the CIS-12 was minimal; both countries were very oriented towards markets outside the region. Integration among the Central Asian countries was also relatively low, although Kyrgyzstan and to a lesser extent Tajikistan were considerably involved in regional trade.

By contrast, electro-energy trading was the most intense between the Central Asian countries, with the greatest volume between Uzbekistan and Tajikistan. Both countries were also very integrated with regional groupings; Tajikistan being the most integrated with the CIS-12, and Uzbekistan with the EurAsEC-5. There was, however a steady overall decline in electro-energy trading within the entire region, especially Central Asia which started from by far the highest point. This has declined further in recent months since Uzbekistan announced its decision to quit the Unified Central Asian Energy System.

Back together

But despite the decline in most indices measuring integration in the last decade, 2009 saw several major steps towards integration within the post-Soviet space. Driven in part by the international economic crisis, these could form the basis for greater cooperation in future. They include the customs union between Russia, Belarus and Kazakhstan, and the creation of the Eurasian Economic Community Anti-Crisis Fund. There are also plans to create a Single Economic Space and a Grain Pool.

A determined effort on the part of the post-Soviet states to work together could lead to rapid re-integration. Vladimir Yasinsky, head of the EDB's strategy and research department, notes that it took 18 years to create a single economic space within Europe, but that integration in the post-Soviet space could be considerably quicker. "The European Union brought together countries with different languages, different legal systems, different histories. In our situation, it is a coming closer together of countries that not long ago were a single state. We have a single international language - Russian and a common history," Yasinsky said.

2010 could be a year that sees a further slowdown in the economies of the region and rising tensions. Conversely, it could be the year when the region's economies start to converge.

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