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Revisiting the Eurasian Market
By Michael Shvartsman, Global Initiatives Intern
Eurasia is important to the global economy. Its developing nations account for an impressive 264 million people and $1.8 trillion in nominal GDP. As a major sign of interest, China has increased trade with Central Asia to over $50 billion annually. Further, recent progress in U.S. – Eurasian relations suggests that it’s time for U.S. companies to revisit the market.
In November 2015, U.S. Secretary of State John Kerry concluded his first Central Asian tour of five countries. The Secretary suggested that the U.S. could work with Central Asian countries to fuel innovation in clean energy technologies and wastewater management. While speaking at Nazarbayev University in Kazakhstan, he announced the U.S.’s participation in a World Bank project designed to support “climate-smart” investment in the region.
The World Bank project, entitled “Climate Adaptation and Mitigation Program for Aral Sea Basin,” will cost roughly $45 million. Although moderate to other Bank projects, it could help spur larger development initiatives. It could also incentivize Eurasian business leaders to increase their activities, particularly ones aligned with the Bank’s projects. Next week, we will find out if this incentive is enough to inspire action.
On April 28 – 29, four Eurasian embassies to the United States will host the first Trans-Caspian Trade & Transit Forum in Washington, D.C. The Forum will serve as a venue for U.S. companies to hear from a delegation of Eurasian business leaders across the railway, shipping, and freight sectors. The Eurasian business leaders will give their account of how new trade routes in the region are making transcontinental shipment easier.
U.S. investors will participate with the intention of determining whether an attractive opportunity exists, or will exist in the region over the next 5 – 10 years. Therefore, Eurasian business must be cognizant of how U.S. investors define an attractive opportunity: by the potential reward, as well as the reputation and credibility of the partner or counterparty in the investment.
Separate of the Forum, a family of American Chambers of Commerce (AmChams) exists throughout Eurasia. The executive boards and members of these Eurasian AmChams are comprised of U.S. business leaders that seek attractive opportunities. The AmChams of Azerbaijan, Georgia, and Kazakhstan will serve as Official Partners to April’s Forum, providing a voice of regional interest and concerns.
The U.S. Chamber of Commerce is also serving as an Official Partner to the Forum. Our goal is to determine whether Eurasian nations are united behind a policy that serves as a catalyst for the revitalization of economic livelihoods. As living standards begin to improve through greater purchasing power, investment will become more attractive in the region.
Existing literature on the region does not convey the existence of a unified policy among Eurasian countries. However, there are some common themes that exist. One positive theme is the progress around the knowledge economy.
Last year, the World Trade Organization welcomed Kazakhstan as its 162nd member. Kazakhstan has abundant natural resources, but is also developing its knowledge economy. The Asian Development Bank reports, information and communications technologies (ICT) usage among business is low, but the government is committed to growing the sector. In January 2014, President Nazarbayev outlined a “Kazakhstan 2050” plan that includes acceleration in the development of electronics, laser technologies, and telecommunications. Uber also sees value in Kazakhstan, and plans to begin operating in Almaty soon.
Similarly, Azerbaijan has introduced a development plan around their knowledge economy. Azerbaijan 2020: Vision for the Future is a development plan introduced by President Aliyev that seeks to double the country’s non-oil sector GDP through economic diversification. Further development of the ICT sector is a cornerstone of this plan. However, the sector currently accounts for a mere 4.74 percent of GDP, and the World Bank notes that a lack of “digitally skilled labor” and infrastructural deployment are hindering growth.
Currency convertibility and price gouging are two challenges to business in Eurasia. According to the Department of State’s 2015 Uzbekistan Investment Climate Statement, currency conversion difficulties are cited by foreign firms as the “greatest impediment to doing business.” There are also cases of price gouging in Uzbekistan, but the country is not alone in this regard. Countries like Tajikistan have previously resorted to price controls as a way of combatting gouging and rapid inflation.
The business delegation of the Trans-Caspian Trade & Transit Forum has an opportunity to showcase their region to U.S. companies. Their message should convince investors that this region is worth a closer look. They should present a vision for the regional economy that fuels unity among their respective countries.