Souleymane Coulibaly, Senior Economist The World Bank

1. Trade Expansion through Market Connection:The Central Asian Markets of Kazakhstan, Kyrgyzstan and Tajikistan Souleymane Coulibaly, Senior Economist The World Bank

2. The report in one sentence The way to expand trade in Central Asia is by connecting leading cities and their hinterlands to leading regional markets

3. Outline of the presentation • What is the problem? • Why is it this way? • Why focus on leading cities? • Why incorporate their hinterlands? • Why connect to regional markets? • How to make it happen?

4. What is the problem?

5. Recent export growth of Central Asia has been driven by resource-based exports • Exports overall have increased • Between 2003 and 2007, the merchandise export of Central Asian countries increased 3.4 times to reach 57 billion$ • However, non-mineral and non-crude materials exports have increased but much less than mineral and crude inedible materials • The former increased 2.6 times to reach 16 billion$ while the latter increased 3.9 times to reach 41 billion$ • Export decomposition exercise confirms that most of the increase in exports in each country over 2003-2007 comes from an increase in exports of existing products to existing markets

6. Potential exists for more non-resource-based exports to leading regional markets • In 2007, 80% of Central Asia’s non-resource-based exports consisted of: • Manufactured goods (68%) mainly going to EU-15, China, Russia and Turkey • Food products (10%) mainly going to Russia, EU-15 and MNA • Non-resource-based exports show enough complementary to build on with imports of leading regional markets • Figures for Central Asia are comparable to major Southeast Asian exporters with China • Lack of complementarity partially due to unmet demand for many of Central Asia’s existing non-resource-based exports Average Trade Complementarity with Leading Regional Markets Kazakhstan Kyrgyz Republic Tajikistan Source: United Nations commodity trade database; authors’ calculations.

7. Why is it this way?

8. Why this way? A look at the world’s economic map Central Asia

9. Managing the three D’s in Central Asia What the report is proposing • Density → Focus on the two leading cities (Almaty and Astana in Kazakhstan, Bishkek and Osh in the Kyrgyz Republic, and Dushanbe and Khujand in Tajikistan) to explore various possibilities to jump start export diversification and trade • Distance → Better connect the leading cities with their agricultural hinterland to unleash the region’s agro-related activities’ potential • Division → Better connect the macro-regions (leading cities and hinterlands) to major regional markets (such as China, India, Russia, and Turkey) along the north–south road corridor

10. Why focus on leading cities?

11. Why leading cities? • Leading cities are the most diversified production places in Central Asia → They should drive the diversification strategy • Leading cities are the main exit points in Central Asia → They should be the nodes of the regional connectivity

12. Leading cities are the most diversified production places Standardized Herfindhal Index by Oblasts Lower Index Scores  More Diversification Kazakhstan Kyrgyz Republic Tajikistan

13. Leading cities are the main exit points in Central Asia • Leading cities are exit points for road travel (left) as well as air travel (right).

14. Why incorporate leading cities’ hinterlands?

15. Why leading cities’ hinterlands? • Central Asia has a revealed comparative advantages in providing agro-related activities • Leading cities in Central Asia are surrounded by fertile agricultural hinterlands → They should drive the intensification of agro-related activities

16. Central Asia has a revealed comparative advantage in some agro-related activities Note: RCA >1 denotes comparative advantage in that product

17. Leading cities are surrounded by fertile agricultural hinterlands Land Cover around Bishkek, KG Land Cover around Astana, KZ Land Cover around Dushanbe, TJ

18. Why connect with regional markets?

19. Why regional markets? • Regional integration can help address supply constraints such as timely availability of quality and quantity raw materials • Global integration, starting with leading regional markets nearby such as China, India, Russia, Turkey can provide access to a larger demand → For a successful regional integration: Start small, Think global and Compensate the least fortunate (WDR2009)

20. Start small, think global: the North-South road corridor, an integration vector to scale up regional supply capacity and connect to global markets

21. Compensate the least fortunate: unleashing the regional hub potential of Almaty Estimated carriage costs between Almaty and major regional markets by different modes of transport, 2009 Source: Data from Global Development Solutions 2009. n.a. = Not available. a Costs are approximations.

22. How to make it happen?

23. How to make it happen?Policy actions needed in all three countries

24. How to make it happen?Additional policy actions needed by Kazakhstan

25. How to make it happen?Additional policy actions needed by Kyrgyzstan

26. How to make it happen?Additional policy actions needed by Tajikistan

27. How to make it happen?Actors to implement the proposed strategy • Astana, Almaty, Bishkek, Osh, Dushanbe and Khujand municipal authorities and business community for city-level policy actions/investments • Astana Oblast, Almaty Oblast, Chu Oblast, Osh Oblast, Region of Republican Subordination and Sughd Oblast authorities and business community for hinterlands-of-leading-cities-level policy actions/investments • Kazakh, Kyrgyz and Tajik national authorities and the business community for regional-level policy actions/investments • Close collaboration between the three decision-making levels is paramount to success to address coordination problems

28. How to promote economic density in leading cities? Measures needed in all countries • Establish in each of the 6 leading cities a single SEZ building on existing EPZs if any: An SEZ covering the entire leading city is ideal (less distortion), although the political economy of each country may conduct to limit it to the main industrial, trade or transport hub • Within each of these 6 SEZs, take actions to improve the quality of backbone infrastructures services (power, water, telecom, finance, transport/logistics), closely involving the business community • Within each of these SEZs, take actions improve business climate: (1) enforce the rule of law to reflect concerns of the business community; (2) commit to a business-friendly charter along the lines of the DB indicators (starting a business, licensing, hiring and firing, registering property, getting credit, protecting investors, paying taxes, trading, enforcing contracts, closing business); (3) communicate on this charter in national and international foras to promote the SEZs

29. How to promote economic density in leading cities? City-specific measures • In Astana: promote flexible land use regulations to adjust to the rapidly changing use of urban land and establish mechanisms to collect input from business community and consumers • In Almaty: complete the subway mass transportation, scale up ICT infrastructure services, and promote cargo consolidation services and multi-modal transportation to unleash its regional hub function • In Bishkek, Osh, Dushanbe and Khujand: Public-Private Partnership to establish competent investment/export promotion agencies focusing on textile and agribusiness promotion • In the 6 leading cities: Public-Private Partnership to establish a regional agribusiness production network anchored on Almaty Food and logistics clusters

30. How to improve leading cities connection with their agricultural hinterlands? • In Kyrgyzstan and Tajikistan: improve road connections between each of the two leading cities and immediate hinterland (one hour drive away city-center), ensure proper servicing (power and water) of storage facilities and market places in the hinterland and develop a price information system • In Tajikistan, where farmers still do not have the freedom to farm: enforce an agricultural land market and land titles in the hinterlands of Dushanbe and Khujand to facilitate industrial agriculture, and provide collateral to farmers • Through the established regional agribusiness production network anchored in Almaty: subsidize quality infrastructures (accreditation, testing, standard, safety) for agribusiness activities in the three countries

31. How to secure accessibility to regional markets? • Frame as the integration vector the North-South road corridor (Nijny-Pjanj-Dushanbe-Khujand-Isfara-Batken-Osh-Bishkek-Almaty-Astana-Petropavlovsk) linking all six leading cities to Afghanistan and Russia and establish a three-tier (stakeholders group, specific working groups, and a secretariat located in one of the 6 cities) corridor management institution to manage the process and solve problems to reduce cost and time • Improve roads/tunnels, specifically: • in Kazakhstan: Almaty-Karaganda leg • in Kyrgyzstan: Osh-Batken leg • in Tajikistan: Anzob and Sakhristan tunnels

32. How to secure accessibility to regional markets? • Improve border crossing points along the North-South corridor by investing (where needed) in border crossing facilities at the Afghan-Tajik, Tajik-Kyrgyz, Kyrgyz-Kazakh and Kazakh-Russia BCPs and simplifying/harmonizing customs documentation and procedures • Modernize the trucking industry in Kyrgyzstan and Tajikistan by promoting the development of cargo consolidation and multi-modal transport services, tapping into Almaty hub function

33. Let’s make it happen!