The European Bank for Reconstruction and Development (EBRD) is holding its annual meeting and business forum in the historic Silk Road city of Samarkand this week at a time when Uzbekistan, Central Asia’s most populous country, is once again in the focus of international investors following several years of reforms, both economic and — more recently — political.
It is also a critical time for Central Asia a whole, as the region adapts to the international sanctions on Russia, the top trading partner and main source of remittances for many countries, on top of dramatic shifts in prices of the commodities the region produces.
The world has changed since the EBRD last held the annual event in Central Asia, in the Kazakhstani capital Astana back in May 2011. Several years during which the coronavirus (COVID-19) pandemic disrupted peoples lives and livelihoods as well as international trade networks were followed swiftly by Russia’s invasion of Ukraine, which had deep repercussions beyond the countries directly involved.
Uzbekistan is arguably the most changed of the Central Asian republics, following the reforms of the last few years, though it is not the only country to look very different than it did 12 years ago. Long-established presidents have been replaced in Kazakhstan and Turkmenistan too, while Kyrgyzstan experienced its third post-independence revolution in 2020.
On the economic front, Central Asia remains the fastest growing sub-region in the broader post-socialist space, and has the fastest-growing population. Despite the global turmoil of the last few years, new infrastructure continues to be built and new industries established, helped by reforms in several countries.
This year’s EBRD annual meeting and business forum has the theme "Investing in Resilience”, and topics covered will include energy security, renewables, digitalisation and financial inclusion, but of course the major theme will be the the challenges posed by the Ukrainian war and how the EBRD is working with Ukraine and other economies in the region to address them.
According to the bank, governors will discuss enhancing support for Ukraine, including by focusing on energy and food security, infrastructure restoration, trade finance, and collaboration with the private sector.
Another major topic on the agenda will be the possibility of limited and incremental expansion of the EBRD's operations to sub-Saharan Africa and Iraq.
The contrast between this year’s venue, Samarkand, and the ultra-modern city of Astana, where the EBRD last convened in Central Asia 12 years ago, could hardly be greater. A Unesco World Heritage Site, Samarkand is one of the oldest continually inhabited cities in the world and was for centuries a hub along the ancient Silk Road, connecting east and west and fostering trade and cultural exchange.
The city’s renowned landmarks, clustered around Registan Square, showcase stunning Islamic architecture and traditional tilework. More recently, Samarkand became the first city in Uzbekistan to boost its urban sustainability planning by joining the EBRD's €3bn flagship Green Cities programme in 2021.
The host nation Uzbekistan will be the subject of a session dedicated to the country’s investment outlook. Since the change of president back in 2016, President Shavkat Mirziyoyev — who is expected to deliver the keynote address to the meeting — has embarked on wide-ranging reforms to open up the country that seven years on have already started to pay dividends.
The economy has grown by an average of 6% every year with the exception of 2021, when despite the lower growth Uzbekistan was one of very few countries worldwide to maintain positive growth.
Initial moves, notably liberalising the foreign exchange regime, were followed by the privatisation of the cotton sector, once the country’s main source of foreign exchange, and a ban on the export of raw cotton, forcing the textile sector to rapidly develop. Other companies in a range of sectors from raw materials to banking are also pegged for privatisation.
All these changes have transformed the environment for investors, and opened the way for development banks like the EBRD to take a new look at Uzbekistan and radically step up their support.
In 2022, the EBRD invested €839mn in 26 projects in Uzbekistan, which solidified its position as the top recipient of EBRD funding in Central Asia for the third consecutive year. Among these investments, the EBRD's largest renewable energy project in any of its regions thus far stands out. Overall, the EBRD has invested over €4bn in 129 projects across Uzbekistan, it said in a press release announcing the annual meeting. The bank is expected to start drawing up a new strategy for Uzbekistan in the near future.
On the political front, things have been more controversial. Mirziyoyev has been criticised in the West for ignoring political reforms, and the political climate has not been conducive to allowing opposition parties and candidates to make much headway among voters. Most recently Mirziyoyev pushed through changes to the constitution that lengthen the presidential term from five to seven years and reset the clock to allow him to serve another two terms. He then announced that he will hold a snap presidential election, saying he needs a fresh mandate to implement further reforms in the face of the “complex issues” facing the world today.
These complex issues are dominated by the repercussions of Russia's full-scale invasion of Ukraine. While almost all European countries moved quickly to condemn Russia’s invasion of Ukraine and impose a series of increasingly tough sanctions packages on Russia, geography and history have dictated that the Central Asian countries — landlocked states with Russia and China as their big neighbours — have had to take a more cautious approach.
None have imposed sanction on Russia and while there have been signs of a more assertive position vis a vis Moscow — notably Kazakh President Kassym-Jomart Tokayev’s public refusal to recognise the Luhansk People’s Republic (LPR) and Donetsk People’s Republic (DPR) in Ukraine, which was made at the St Petersburg International Economic Forum (SPIEF) last June — it was notable that the leaders of all five states plus Armenia still attended the recent Victory Day parade in Moscow alongside Russian President Vladimir Putin.
Sanctions have had an impact on trade in the region. For trade between the Far East and Europe, flows of goods have been pushed around the southern edge of Russia, which has brought Central Asian countries such as Kazakhstan closer to achieving their ambitions to take a large share of the China-Europe trade flows.
EBRD has said it stands ready to invest billions of euros in developing cargo routes between Europe and Asia that bypass Russia, as the tussle for control of trade routes across the Eurasia landmass gets underway.
At the same time, the vexed question of parallel imports has caused concerns among the region’s Western partners. A senior European diplomat told Bloomberg recently that Russia may be sidestepping EU and G7 sanctions to procure vital semiconductor and other technologies for its war in Ukraine. The suggestion that Russia is successfully using middlemen and transit via “friendly countries” was backed up by a recent report on trade conducted by the EBRD.
Fast growth continues
Despite Russia's economic crisis, Central Asia has continued its fast growth, which is set to be as high as 8.0% in Tajikistan, 7.0% in Kyrgyzstan and Mongolia, and 6.5% in Turkmenistan and Uzbekistan, the EBRD said in its latest Regional Economic Prospects report in February,
Across the region, GDP is expected to grow by 4.9% in 2023, a slight upward revision from September, reflecting the boost from high oil and gas prices for commodity exporters, increased inflows of labour, capital and remittances and a rise in intermediated trade.
This contrasts with the bank’s forecasts for average growth of just 2.1% across its countries of operation, down from the 3.0% projected in September.
The EBRD’s commentary on the Central Asia region revealed a mixed impact from Russia's war on Ukraine. Kazakhstan and Turkmenistan are experiencing favourable economic conditions due to increased oil and gas revenues, driven by elevated prices. Meanwhile, Kyrgyzstan, Tajikistan and Uzbekistan have witnessed notable growth in labour inflows, capital and remittances.
“With many Western companies exiting the Russian market and Russian ports being sanctioned, Central Asian economies are also seeing significant gains in trade with Russia and China, both by exporting own products (for instance, textiles and consumer electronics) and by providing transportation and re-exporting services,” the report said.
However, despite the strong short-term growth prospects, the EBRD argued in February that Central Asian economies need to “confront challenges such as inflation and high debt-service costs”.
Like the rest of the broader region they also face pressing climate change issues, not least its impact on water flows in Central Asia, where the sharing of water between the five states is a deeply political question.