IT has been twelve years since the first European Union (EU) strategy for Central Asia (CA) was adopted in 2007.¹ Since then it has been reviewed and amended four times, most recently in June 2015,² to incorporate the changing geopolitical landscape in the region. During this time, the EU has been successful in increasing its presence in the region. It has created several platforms and mechanisms for working and improving ties with Central Asian authorities, and by the end of 2019 the EU is expected to open a new delegation in Turkmenistan. Human rights, security, stability, rule of law and the EU’s model of governance are among the priorities of the first ambitious strategy. These conditionalities, however, did not win the hearts and minds of the Central Asians, who had been keen on increasing trade with the EU, attracting foreign direct investments (FDI) for big infrastructure projects and obtaining ‘fancy’ border management equipment.

Economically, while trade between the EU and CA has grown and the EU is now the main trading partner of the region, accounting for about a third of its overall external trade, exports to the EU from CA remain low and focused on certain commodities. Within the region itself, the level of cooperation remains insignificant ‘as the five Central Asian countries do less than 1/10th of their total foreign trade with one another.’³ The lack of regionalism and cooperation among the Central Asian states is a phenomenon that reveals regional isolationism.

 

However, the opening up of Uzbekistan through a wave of economic and political reforms under its new President Shavkat Mirziyoyev,⁴ and the recent peaceful power transfer in Kazakhstan from Nursultan Nazarbayev to the newly appointed⁵ President Kassym-Jomart Tokayev, signalled that the time was ripe for a new EU strategy in the region; one that has a bottom-up approach and focuses on regional cooperation while emphasizing the well-being of citizens. Developing this strategy took almost two years. In June 2017,the Council of the EU issued its ‘Conclusions on the EU Strategy for CA’, inviting the High Representative Federica Mogherini and the European Commission (EC) to come forward with a proposal for a new strategy by the end of 2019.⁶ The lengthy consultation process, which included the authorities and civil society organizations, led by the EU Special Representative for the region, Peter Burian and his team, bore fruit. On 15 May 2019 – ahead of the 15th EU-CA Ministerial meeting which took place on 7 July in Bishkek, Kyrgyzstan – the EC issued a Joint Communication to the European Parliament and Council on ‘The EU and Central Asia: New Opportunities for a Stronger Partnership’⁷ which was endorsed by the Council of Foreign Affairs on 17 June.

This article compares the 2007 and 2019 strategies and endorses the connectivity laid out in the Connecting Europe and Asia EU Strategy, released in 2018. It identifies a significant shift in focus towards sustainable connectivity in the area of trade and recommends a future course of action for the development of local economies through intra and inter-regional cooperation.

 

Compared to the 2007 Central Asia Strategy, this new document emphasizes prosperity in the form of economic development, creating opportunities for the youth; resilience – not only in terms of tackling regional security challenges, but also by investing in resilient societies; and intra-regional cooperation along with connectivity among the Central Asian states and their neighbours.

There are some new developments that set apart the documents published in 2007 and 2019 respectively. In short, the increased focus is on promoting EU-CA connectivity. From a simple word search, ‘connectivity’ is mentioned 19 times in the 2019 Joint Communication, whereas it does not appear at all in the 2007 document.

 

The EU’s definition of connectivity, elaborated in Annex I of the chair’s statement at the 13th ASEM foreign ministers meeting (and this is the definition of connectivity used by the EU in its official documents as pointed out in the commission’s 2018 joint communication on ‘Connecting Europe and Asia – Building Blocks for an EU Strategy’), ‘is about bringing countries, people and societies closer together. It facilitates access and is a means to foster deeper economic and people-to-people ties. It encompasses the hard and soft aspects, including the physical and institutional social-cultural linkages that are the fundamental supportive means to enhance the economic, political-security, and socio-cultural ties between Asia and Europe which also contribute to the narrowing of the varying levels of development and capacities.’⁸

Further, as shown by the summarizing factsheet of the strategy for ‘Connecting Europe and Asia’,⁹ connectivity is made up of four pillars: Transport, Energy, Digital and the Human Dimension. The latter is a multifaceted one, which relates to human security and human development.

The 2019 strategy, from the first page, recites that ‘renewed efforts to promote Euro-Asian connectivity have increased interest for the EU’s approach to sustainable connectivity.’ Issues related to sustainability, the environment and climate change are a common theme throughout the document. The vision of resilience and sustainable connectivity, which is in line with the EU Global Security and the EU-Asia Connectivity Strategies respectively, is extremely beneficial for the Central Asian countries.

The EU’s development cooperation is inclusive and sustainable, and emphasizes good governance. However, the EU is not the only external partner for the region. There are several players who have their own visions for CA. The most notable ones are the Russia-led Eurasian Economic Union (EEU) and the Chinese-led Belt and Road Initiative (BRI). Instead of engaging in a new type of ‘Great Game’ competition among the ‘big boys’, the EU should make cooperation with third parties in the region conditional on certain standards – international rules and norms – being met. The Central Asian states should focus on improving the investment climate in their countries and also the business environment for local enterprises. This should be accompanied by efforts to solve their chronic connectivity problems, thereby improving intra and inter-regional cooperation. In this light, and within the framework of the new EU strategy on CA, local economies in the region could then benefit from the financial instruments offered by the former.

 

The region, strategically located between the East and the West, neighbours the sizeable markets of China, Russia, Turkey and Iran, thereby offering the prospect of a promising regional market. A number of factors show that CA has become an increasingly attractive destination for Foreign Direct Investment (FDI) and the present time is particularly favourable for investment in a wider range of sectors to unlock the full potential of regional economies. This could help accelerate economic and social development, along with achieving widespread prosperity.

 

However, such progress can only be achieved if the region fully acknowledges the emerging internal and external requirements and challenges, particularly those associated with increased urbanization, globalization, improvement of the business environment, and the consequences of climate change, whilst also creating a welcoming environment for FDI.¹⁰ To facilitate foreign investment in their countries Kazakhstan, Uzbekistan and Kyrgyzstan have instituted investment promotion agencies that provide information and support to investors – the Kazakhstan National Export and Investment Agency (KAZNEX), UZINFOINVEST (the Information Support and Foreign Investments Promotion Agency of Uzbekistan) and the Investment Promotion and Protection Agency of the Kyrgyz Republic (IPPA). They act as ‘one-stop-shop’ service providers, supporting foreign investors in the procedures associated with starting and doing business in the country along with helping investors establish contacts with local public administrations. In addition, in Kazakhstan, investor service centres tasked with assisting foreign investors in collecting relevant data and selecting investment sites are active in every region.¹¹

So far, growth has been driven mainly by exports of hydrocarbons, hard minerals and remittances from migrant labour in Russia. Two external shocks played a significant role in the region’s economic slowdown since 2014. First, the Russian ruble weakened its value against the US dollar (USD) as a result of the drop in oil prices worldwide. Second, the West imposed sanctions on Moscow following the illegal annexation of Crimea and its involvement in the ongoing crisis in Ukraine. The currency depreciation that followed raised the risks of inflation, suppressed consumer demand and hurt the savings rate in the region. In addition, unemployment increased while the value of remittances in USD decreased.

This economic fragility indicated a need for a ‘more sustainable and inclusive growth model, based on a diversification of economic activity,’¹² one that involves the private sector and in particular Small and Medium Enterprises (SMEs). However, the region’s business environment remains unfavourable for this.

 

The regional governments expressed an interest in further expanding trade, particularly exports to the EU, which is a very attractive market. Tajikistan is planning to apply for the Generalized System Preferential plus (GSP+) scheme¹³ and Uzbekistan is considering it as well.¹⁴ Authorities also requested EU support and expertise in the areas of youth unemployment, especially in rural areas; tourism development; Vocational Education and Training (VET); and the development of SMEs. However, there are a few concerns. Central Asia is quite far from Europe, which partly explains why the main export commodities are hydrocarbons and raw materials. For example, Kyrgyzstan is a beneficiary of the GSP+ programme since 2016¹⁵ and the bulk of agricultural exports to the EU are dried fruits and nuts.¹⁶

 

GSP+ is just the first step to produce and export to the EU. They also need to have better Sanitary and Phytosanitary (SPS)¹⁷ standards. Even this doesn’t guarantee that Central Asian countries will be able to export their agricultural products to the EU, which is a very competitive market.¹⁸ Not only does the EU have its own agriculture production, it also imports products from all around the world. One can argue that if the authorities in Central Asia are serious about boosting their respective local economies, they should focus on regional cooperation and enhance regional trade as well.

Meanwhile SMEs in the region face difficulties in obtaining start-up capital. Lack of expertise in obtaining certification, such as ISO and SPS, hinders investments from local financial institutions. Low product competitiveness due to limited financing, poor marketing, limited knowledge in accessing new markets – whether regional or international – and an inadequately educated workforce, are the most pressing issues in the private sector.¹⁹

 

Some experts claim that the EU should engage with established international donors in the region such as the Asian Development Bank (ADB), the Organization for Economic Cooperation and Development (OECD), the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD). They suggest that the EU should support these organizations financially, technically and in terms of human resources. However, there is no need to duplicate the agenda of these donors and come up, for instance, with specific SME related projects. But the area where the EU can truly make a difference is education.

In the educational sphere the EU can contribute significantly by establishing VET institutions, improving curricula and career support services to link schools and universities with enterprises. This will help tackle issue of unemployment in rural areas and, consequently, the substantial internal migration flows towards capital cities. The EU’s assistance in this area is imperative since all countries in the region, including Kazakhstan, the regional economic leader, suffer from immense development imbalances between the major urban centres and the rest of the country.

Online educational programmes are another good area for the EU to invest in. This includes Regional Small Business Programmes by Business Intermediary Organizations (BIOs) and start-up advisors that focus on advocacy training, how to engage state institutions, facilitating investments and access to finance, and reducing bureaucratic complexities, among other things.²⁰ Study visits to European SMEs as well as to neighbouring countries’ SMEs (e.g. India),²¹ will be of added value. The EU should also facilitate and fund joint research projects between European and Central Asian universities and think tanks, for example, on where SMEs should be located and what they need to produce to be more successful.

 

The EU is a major donor and a co-chair in the OECD Eurasia Competitiveness Programme and, since 2007, has its own Central Asia Invest (CAI) programme²² that mainly focuses on developing the tourism, handicraft and food processing sectors. Both initiatives aim to reinforce the role of BIOs – such as chambers of commerce, national tourism associations, farm unions, etc. – so that ‘they can further stimulate the business sector and support enterprises.’²³ This support is in the form of grants for projects involving Central Asian and European BIOs. Going forward, the EU should focus more on projects with cross-border activities that involve BIOs from at least three, if not four, different Central Asian countries. This will encourage regional cooperation, as in the case of the rural and community tourism project in Uzbekistan run by the European Centre for Eco and Agro Tourism (ECEAT) of the Netherlands.²⁴

In terms of agricultural SME finance, the EU should invest more in Warehouse Receipt Financing pilot projects in the region, similar to the one that GIZ and ADB implemented in Kyrgyzstan,²⁵ whilst taking into account the local realities regarding the poor state of warehouse infrastructure. As part of the internationalization process of the SMEs in the region, the EU, in cooperation with EBRD and other financial institutions, should support locally driven state initiatives by facilitating meetings and an exchange of views between EU based industries, which are potential business partners, and the Central Asian representative, for example, of a state fund for SMEs. The Promotion Fund for Small Business and Private Entrepreneurship (EPF) in Uzbekistan is one such example.²⁶

 

The EU should encourage the facilitation of a regional visa-free regime, an issue that was discussed one year ago in Uzbekistan.²⁷ The so-called ‘Silk Visa’ will be beneficial for tourism and especially for local businesses as in the case of West Africa.²⁸ Here, visa requirements between member states were eliminated and ECOWAS passport and travel permits were established.²⁹ The EU should also support greater public-private dialogue and business networking with the region. For this, it should establish business and investment forums of interest to Central Asian companies, similar to the EU-West Africa Business Forum or the EU-Africa Business Forum.³⁰

 

Despite the fact that intra-regional trade in CA is currently limited, the EU should continue furthering cooperation, in close collaboration with the local authorities. Uzbekistan’s opening up and the interest expressed by the regional government in expanding trade with the EU through their applications for the GSP+ under the EU’s GSP programme, presents a window of opportunity. While the legal framework for European engagement with the region, combined with political will, are in place, the EU must also pursue closer cooperation with finan-cial institutions – EBRD, UNDP and ADB among others – and external actors such as India and China.

 

Footnotes:

1. Council of the European Union, ‘The EU and Central Asia: Strategy For a New Partnership’, 2007. http://register.consilium. europa.eu/doc/srv?l=EN&f=ST%2010113% 202007%20INIT.

2. Council of the European Union, ‘Relations with Central Asia – Council Conclusions on the EU Strategy for Central Asia’, 2015. http://data.consilium.europa.eu/doc/document/ST-10191-2015-INIT/en/pdf

3. Jos Boonstra and Andreas Marazis, ‘How "Central" is Central Asia in the EU-Asia Connectivity Strategy?’ Europe-Central Asia Monitoring, 2019. https://eucentralasia.eu/2019/01/how-central-is-central-asia-in-the-eu-asia-connectivity-strategy/

4. Shavkat Mirziyoyev came to power in September 2016 after the death of Uzbekistan’s first president, Islam Karimov and on 4 December 2016, he won a snap presidential election.

5. On 19 March, ex-President Nursultan Nazarbayev announced his resignation after almost 30 years of service and the handing off of the presidency, according to the Kazakh Constitution, to the – until then – chair of the Senate, Kassym-Jomart Tokayev. The latter called for snap presidential elections on 9 June in which he won 70.8% of the vote.

6. Council of the European Union, ‘Council Conclusions on the EU Strategy for Central Asia’, 2017. https://www.consilium.europa. eu/media/23991/st10387en17-conclusions-on-the-eu-strategy-for-central-asia.pdf

7. European Commission, Joint Communication to the European Parliament and the Council – The EU and Central Asia: New Opportunities for a Stronger Partnership, 2019. https://eeas.europa.eu/sites/eeas/ files/joint_communication_-_the_eu_and_central_asia_-_new_opportunities_for_a_ stronger_partnership.pdf

8. 13th ASEM Foreign Ministers’ Meeting, ‘Strengthening Partnership for Peace and Sustainable Development’ (Chair’s Statement) – Annex I, 2017. https://asean.org/wp-content/uploads/2017/11/Annex-I.pdf

9. European External Action Service, ‘Connecting Europe and Asia: The EU Strategy’, 2018. https://eeas.europa.eu/sites/eeas/files/europe_asia_connectivity_factsheet_1.pdf

10. UNCTAD, ‘Investment Guide to the Silk Road’, UNCTAD, Geneva, 2014. https://unctad.org/en/PublicationsLibrary/diae 2014d3_en.pdf

11. OECD, ‘Public Governance Reviews Kazakhstan: Review of the Central Administration’, OECD, 2014. https://read.oecd-ilibrary.org/governance/kazakhstan-review-of-the-central-administration_9789264 224605-en#page1

12. OECD. ‘Competitiveness and Private Sector Development: Enhancing Competitiveness in Central Asia’, OECD, Paris, 2018. https://www.oecd-ilibrary.org/docserver/9789264288133-en.pdf?expires= 1561035215&id=id&accname=guest& checksum=C282CABF67FEAC8C774366 AD3F7E8A75

13. ‘EU-Tajikistan Relations’, EEAS – European External Action Service – European Commission, 2019. https://eeas.europa.eu/headquarters/headquarters-homepage_en/4078/EU-Tajikistan%20relations

14. Interview with EU source, 19 June 2018.

15. European Union Delegation to the Kyrgyz Republic, ‘European Union Grants GSP+ Status to the Kyrgyz Republic’, 2016. https://eeas.europa.eu/sites/eeas/files/news160202_en.pdf

16. Interview with EU source, 19 June 2018, op. cit.

17. Sanitary and Phytosanitary Measures (SPS).

18. Interview with EU source, 19 June 2018, op. cit.

19. OECD, 2018, op. cit., fn. 12.

20. ‘EBRD and EU Launch Regional Small Business Programme in Uzbekistan’, EEAS – European External Action Service – European Commission, 2018. https://eeas.europa.eu/regions/central-asia/40579/ebrd-and-eu-launch-regional-small-business-programme-uzbekistan_en

21. Directorate General for International Cooperation and Development, ‘Central Asia Invest: Boosting Small Business Competitiveness’, European Commission, Brussels, 2015. https://ec.europa.eu/europeaid/sites/devco/files/brochure-central-asia-invest-2015_en.pdf

22. ‘Central Asia – Private Sector – Inter- national Cooperation and Development – European Commission’, n.d., International Cooperation and Development – European Commission. https://ec.europa.eu/europeaid/regions/central-asia/eu-support-private-sector-development-central-asia_en.

23. Directorate General for International Cooperation and Development, 2015, op.cit., fn. 21.

24. ‘Strengthening Rural and Community Tourism Business Intermediary Organizations For Inclusive Economic Development in Central Asia’, EEAS – European External Action Service – European Commission, 2018. https://eeas.europa.eu/headquarters/headquarters-homepage/47372/strengthening-rural-and-community-tourism-business-intermediary-organisations-inclusive_en

25. OECD, 2018. op. cit., fn. 12.

26. Ibid.

27. ‘Senator Nazarbayeva Proposes Introduction of Single Central Asian Visa’, The Astana Times, 2018. https://astanatimes.com/2018/06/senator-nazarbayeva-proposes-introduction-of-single-central-asian-visa/

28. European Commission (DG DEVCO), ‘West Africa, Regional Indicative Programme, 2014-2020’, 2015. https://ec.europa.eu/europeaid/sites/devco/files/eeas-2015-rip-west-africa_en.pdf

29. The Economic Community of West African States (ECOWAS) was created by the Treaty of Lagos in Lagos, Nigeria, on 28 May 1975. It was created to promote economic trade, national cooperation and monetary union for growth and development throughout West Africa. There are currently 15 member countries in the Economic Community of West African States. The founding members of ECOWAS were: Benin, Côte d’Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Mauritania (left 2002), Niger, Nigeria, Senegal, Sierra Leone, Togo and Burkina Faso (which joined as Upper Volta). Cape Verde joined in 1977.

30. European Commission (DG DEVCO). 2015, op. cit., fn. 28.