Unlocking the trade and investment potential of Central Asia

Published : 3 weeks ago, on 28/08/2024

By Eng. Hani Salem Sonbol, CEO of the International Islamic Trade Finance Corporation

Fostering regional cooperation, diversifying exports and expanding international trade networks could have a transformative impact on the future prosperity of Central Asia. For Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan, Turkmenistan and Azerbaijan, finding a way to work together to improve the regions trade and investment capabilities is imperative.

And it is through collaboration that the collective power of Central Asia can be truly unleashed. To contextualize this, in 2023, regional trade volume stood at $7.2 billion, representing only 7.5% of the region’s total trade and highlighting the significant growth opportunity.

The region’s dependence on export commodities such as oil, gas, and minerals leave them exposed to risk. In 2021, Kazakhstan’s oil exports alone accounted for approximately 57% of its total exports. Gold exports also made up around 36% of Kyrgyzstan’s total exports, while hydrocarbon, oil and natural gas exports accounting for 83% of Turkmenistan’s total.

This data suggests that countries in the region are predominantly exporting raw materials at the lower end of the value chain, as opposed to processed goods higher up the value chain.

Looking at international trade, Central Asian countries typically exhibit lower export volumes – for example, in 2022, Tajikistan’s total exports came to a total of just $2.14 billion, which is doubled by their imports total of $5.17 billion. Additionally, the combined foreign trade turnover of the region in 2022 was about $190 billion, with Kazakhstan making up 80% of the region’s total volume.

Recently, the International Islamic Trade Finance Corporation (ITFC) launched the Trade Connect Central Asia+ (TCCA+) Program. Unveiled at the Third Tashkent International Investment Forum in May 2024, this pioneering initiative is uniquely positioned to promote the regional economic cooperation among the six benefitting countries through more, and higher value-added trade – paving the way for wider integration into the Organisation of Islamic Cooperation (OIC) and other international markets.

What does this mean in terms of numbers? Well, the program aims to unlock the latent potential of US$600 million of intra-trade in the targeted regions over the next 5 years.

The implementation of initiatives such as the TCCA+ Program – with the aim of improving the quality and consistency of production to make regional products more competitive in international markets, enhancing trade facilitation to reduce the time and costs of border crossings, and increasing regional business interactions – also minimises the burden of red tape and opens the door for trading internationally.

The economic and social potential of the TCCA+’s member countries is also significant. Uzbekistan, for example, is a rapidly growing country. According to the World Bank, the country has set its sights on becoming an upper-middle-income country by 2030, requiring real per capita national income to grow by 9-10% annually. Moreover, under Uzbekistan’s new open and progressive reform agenda, its economy has been growing by approximately 6% per annum.

Uzbekistan itself also boasts of a growing population – with 37 million people whose average age is 29 and can claim a 99% literacy rate. A young and highly educated workforce showcases the quality of human capital available to international businesses and investors, and represents compelling evidence of a bright future for the country.

Uzbekistan is also aligning its legislation with World Trade Organisation (WTO) agreements to expedite its accession, indicating its strong commitment to integration into the global economy and rules-based system. Kazakhstan and Tajikistan have been members since 2015 and 2013, respectively with Azerbaijan and Turkmenistan aiming for accession into the organisation.

We are already seeing the benefits of regional cooperation, as Central Asia increasingly acts as a coordinated, regional block. Initiatives like the proposed “New Silk Road” and improvements to cross-border trade and investment opportunities highlight this trend, and offer glimpses of the extraordinary opportunities it is creating. In another concrete example of this culture of cooperation, the presidents of all Central Asian states are engaged in regular dialogue through the so-called C5 format – itself a demonstration of the region’s growing geopolitical importance. Just as much economic as political, the WTO reports the Central Asian region has seen intra-regional trade grow steadily at around 9-11% annually over the past few years.

The vast potential of this pivotal region remains untapped. This is why initiatives like the TCCA+ Program are designed to address the specific challenges faced by the OIC member countries in Central Asia and Azerbaijan by supporting economic growth, diversifying their economies, creating more employment and ultimately achieving regional cooperation.