Trade

While exhibiting significant differences, the Central Asian countries face a number of common trade and human development challenges. Several of these challenges have been highlighted or aggravated by the recent economic crisis. Trade, in particular, has declined owing to lower demand in key markets, lower commodity prices, a drop in remittances and other foreign inflows, and trade finance difficulties. Countries in the region have taken short-term measures to deal with the challenges mentioned, but the longer-term development of the region would benefit from concerted actions to increase trade in a way that contributes to human development.

There are considerable untapped potential for trade diversification and trade development both within the region and with the rest of the world. The main obstacles for developing this potential include a number of institutional impediments to trade, and the unfavourable geography of the countries.

In the short term, trade development opportunities should be exploited through targeted development of specific sectors with recognised export potential, combined with measures for raising quality standards and improving input efficiency.

In the medium and long term, harmonised trade policies, trade facilitation, institutional and regulatory development, continued product and market diversification, and improvement of business conditions would allow new sectors and enterprises to develop in response to future shifts in local and international demand, thus sustainably contributing to human development.

Central Asia expanding trade by connecting with markets

This World Bank study focuses on three countries of Central Asia – Kazakhstan, the Kyrgyz Republic, and Tajikistan – and applies the framework used by the World Development Report (WDR 2009). These countries agreed to participate in the study, but the results of this work are also relevant for others in the Central Asia region.

The five countries of Central Asia expanded their trade significantly since beginning their transition with exports quadrupling to almost $70 million between 2003 and 2008 but without substantial diversification. These countries achieved this by promoting private investment, property rights, trade liberalization, and transport infrastructure in varying degrees.

The global crisis reduced trade and exports of the three countries in 2009 as it did for the world. Nevertheless, as the world economy recovers, these countries must think strategically about how to diversify and expand their exports in the medium to long term. This is particularly challenging for these countries that have small domestic markets and are landlocked and relatively remote from large markets; they suffer from low domestic economic density, long distances to markets, and significant economic divisions between trading partners and major markets, making the framework of the WDR 2009 relevant.

The study recommends that Kazakhstan, the Kyrgyz Republic, and Tajikistan anchor their export diversification and growth strategy on three spatial scales-urban (leading city), area (city-hinterland), and regional (integration with regional markets).