Central Asia’s economic story is one of impressive growth, but to sustain this trajectory and achieve sustainable, long-term development, the region must diversify beyond its raw material sectors. According to Nikolai Podguzov, chairman of the board of the Eurasian Development Bank (EDB), which has invested in a broad range of sectors in the region, while Central Asia has benefited from its vast natural resources, relying on them alone will not deliver the industrialisation needed for future prosperity.

“Since 2000, we have seen the per capita GDP in Central Asia almost triple, which is quite an impressive growth story,” Podguzov said in an interview with bne IntelliNews. However, despite these gains, Central Asia still lags behind developed countries in terms of living standards. The way forward, he argues, is clear: “If we want fast and sustainable growth, industrialisation is crucial. Industry allows countries to move up the value chain, creating more jobs, higher incomes and better wages.”

Podguzov contests the notion that Central Asia can thrive by continuing to focus on its natural resources. “Not every country in the region can specialise in raw materials,” he said. More importantly, he argues that diversification is essential to building a modern and resilient economy. “To close the gap with other middle-income economies, manufacturing in Central Asia needs to grow by about one and a half times from current levels.”

Economic transformation 

As Central Asia navigates this path, the EDB is playing an important role in its economic transformation. The Almaty-based development bank, which has a strong focus on non-sovereign projects and the private sector, has made significant investments in the region’s infrastructure and industrial development. “Nearly the entire investment portfolio of our bank is dedicated to these areas,” Podguzov says. 

In 2022 and 2023 alone, the bank invested $3.8bn, exceeding non-sovereign financing from other multilateral development banks (MDBs) in its member states. Currently the development bank’s paid-in capital stands at $1.5bn, and its cumulative investment portfolio reached $15.3bn by mid-2024. For every dollar contributed by EDB shareholders, the bank has mobilised ten dollars in investments in its member countries: Armenia, Belarus, Kazakhstan, the Kyrgyz Republic, Russia and Tajikistan. The projects supported by the EDB are expected to create nearly 37,000 permanent jobs and generate $1.4bn in annual tax revenues. 

“Most importantly, these projects are aimed at improving the living standards of over 200mn people across the Eurasian region,” according to Podguzov. 

The EDB’s current strategy, covering the period 2022-2026, focuses on strengthening its role as a development bank in the region, aligning with the sustainable development goals (SDGs) and environmental, social and governance (ESG) standards, Podguzov tells bne IntelliNews.

The bank’s commitment to diversification is reflected in its strategic investments across a range of sectors, including transport infrastructure, digitalisation and water management. “Our input improves connectivity and supports the development of new industries, which are essential for building a resilient and modern economy,” says Podguzov. In the smaller economies of Armenia, Kyrgyzstan and Tajikistan, the EDB is scaling up its investments, aiming to quadruple its funding to $500mn by 2026.

Future growth prospects

Looking ahead, Podguzov is bullish on Central Asia’s growth prospects. “Central Asia is a large and rapidly developing region, and we have seen impressive progress here,” he says. “Over the past 23 years, the region’s economy has grown at an average rate of 6.4%. To put that into perspective, during the same period, emerging markets grew by 5.2% and the global economy by just 3.6%. So Central Asia has been outpacing both emerging markets and the global average.” 

Recently, the region has shown resilience in the face of challenges, with GDP growth averaging 4.5% in 2021-2023. The EDB expects this trend to continue, projecting combined GDP growth of over 5.5% for Kazakhstan, Kyrgyzstan and Tajikistan in 2025-2026. Kazakhstan, in particular, is set to lead economic growth among the Eurasian Economic Union (EAEU) countries.

“Central Asia’s performance highlights the strength and potential of the region,” Podguzov said. The region is well-positioned to achieve sustainable, long-term growth through diversification and strategic investments in infrastructure and industry.

Commenting on the EDB’s role in supporting growth in the region, he added: “We focus on investing in key infrastructure projects in transport, electric power and major industries such as chemicals, oil and gas, metals, IT and agriculture. However, our role goes beyond financing – we see ourselves as partners in development. By aligning our projects with each country’s specific needs, we aim to foster long-term prosperity across Central Asia.” 

A window of opportunity 

Another major factor working in Central Asia’s favour is its demographics. With a population of 79mn, growing at 1.6% per year, the region has a large and expanding labour force. That is in contrast to other parts of the Emerging Europe region, where most countries are suffering a long-term population decline due to a combination of emigration and low birth rates. 

Podguzov is optimistic about the economic impact of this population growth, which he sees as a “demographic window of opportunity” that will last for the next 15 to 20 years.

“The region’s economy has been growing at an average rate of 6.4% per year, reaching $458bn,” Podguzov said. He believes that Central Asia’s growing population and strategic location will help it capitalise on external markets and cement its importance within Eurasia.

Improved transport links 

One of the most crucial elements of Central Asia’s economic future is its ability to enhance connectivity through infrastructure improvements. 

The landlocked region faces "significant challenges when it comes to driving regional development and economic growth,” admitted Podguzov. 

Central Asia occupies a strategic position within Eurasia, and Podguzov sees its potential as a transit hub as a key driver of growth. 

However, he points to the need to modernise transport infrastructure from railways to roads to ports. “A lot of our existing transport infrastructure, like railways, roads and ports, needs major upgrades to keep up with the increasing trade volumes and improve overall efficiency. We are focusing on projects like double-tracking and electrifying railways, improving road networks and expanding port capacities to make this happen,” he said. 

Beyond physical infrastructure, the EDB is also working to improve ‘soft’ connectivity through initiatives like digitalising transport documentation and streamlining regulatory frameworks. “If we can halve cargo and vehicle downtime at border crossings, exports from Central Asian countries could increase by 18%,” Podguzov noted.

“Of course, sustainability and resilience are crucial. We need to make sure our transport infrastructure can withstand the impacts of climate change and meet environmental standards.” 

Public-private partnerships (PPPs) are essential for bringing private expertise and investment, accelerating infrastructure development and modernisation, improving project delivery efficiency, and better managing risks across the region.

"The EDB is fully committed to transforming the transport landscape in Central Asia through strategic investments and the effective use of PPPs. Our goal is to enhance connectivity, facilitate trade and support sustainable development across the region,” said Podguzov. 

Strategic partnerships 

The EDB is not acting alone in its mission to drive Central Asia’s economic transformation. It frequently collaborates with other MDBs and international institutions. “We see significant potential in working with other MDBs on large-scale development projects, knowledge exchange and policy-making,” Podguzov explained.

One standout example – both as a successful PPP and as a collaboration with fellow development banks – is the Big Almaty Ring Road (BAKAD) project, which the EDB co-financed alongside the European Bank for Reconstruction and Development (EBRD) and the Islamic Development Bank (IsDB).

“BAKAD connects key international routes in the East-West corridor, enhancing transport links and opening up new opportunities for freight traffic,” said Podguzov. The project is expected to reduce congestion in and around Almaty, Kazakhstan’s largest city, while boosting trade across the region. Such investments, he adds, are critical to unlocking the region’s potential as a transit route between China, Turkey and Europe.

Podguzov also highlights research collaborations with other MDBs, as well as a joint project with the United Nations World Food Programme (WFP) and Yeremyan Farm, an Armenian dairy producer. Together, they have launched a programme to provide school children with daily milk portions to ensure they receive essential nutrients and vitamins.

In a separate initiative, the EDB is working on a regional water management project in Kazakhstan with the United Nations. The EDB plans to provide about $5.3mn in technical assistance for the project, which will support efforts like digitalising the water sector, setting up training centres for advanced irrigation, testing new water-saving techniques and developing legal and institutional frameworks.

Access to finance 

Aside from connectivity, another issue for companies in the region is access to finance, and the EDB is involved in modernising financial infrastructure across Central Asia. 

In Kyrgyzstan, the bank has teamed up with the Financial Credit Fund, the Russian-Kyrgyz Development Fund and the Kyrgyz Stock Exchange (KSE) to revamp the exchange’s IT systems, aiming to attract international investors. 

This initiative, funded through the EDB’s Technical Assistance Fund, is part of a broader effort to connect Kyrgyzstan’s financial institutions with other Eurasian Economic Union (EEU) markets, positioning KSE as a central exchange ecosystem in the region. 

A similar project in Armenia saw the EDB modernising the Armenia Securities Exchange’s trading platforms, making the market more accessible for investors. Between 2019 and 2023, this overhaul resulted in a 138% increase in the value of government securities auctions and a tripling of listed securities. 

In Kazakhstan, the EDB is building an Islamic finance window, with plans to expand its Central Asian investment portfolio further. Given the region's large Muslim population, Islamic finance represents a significant growth area. The EDB is also raising funds in the Chinese market to support infrastructure projects across Kazakhstan and the region, reflecting the growing demand for renminbi-based transactions as cooperation with China intensifies.

Climate change challenges 

Central Asia is highly vulnerable to the impacts of climate change despite its relatively low contribution to global greenhouse gas (GHG) emissions. The region is already experiencing the effects, such as shifting weather patterns, severe droughts and melting glaciers. This creates significant challenges for water availability, which is essential for agriculture, daily use, and energy generation. In countries like Kyrgyzstan and Tajikistan, around 90% of electricity is produced from hydropower, meaning water shortages could severely impact energy supply, especially as demand for water increases from various sectors.

To address these growing challenges, the EDB is taking a comprehensive approach to climate action, as outlined by Podguzov. 

Looking ahead, the bank plans to invest over $400mn in Central Asia's water and energy sectors over the next three years, focusing on both mitigation and adaptation. Renewable energy is a key part of this strategy, with around half of the EDB’s current energy projects centred on wind, solar and hydropower. The bank believes that unlocking the region’s renewable energy potential is essential to reducing dependence on fossil fuels and building resilience against climate change. 

"Transitioning to cleaner energy sources and increasing efficiency are critical steps for Central Asia," Podguzov said. In Kazakhstan, for example, the bank is supporting the reconstruction of Almaty’s CHPP-3, a major power plant. This project will shift the plant from coal to gas-fired generation, with the goal of cutting GHG emissions by 62% by 2030. 

Such efforts are vital in a region where coal still plays a dominant role in energy production, and transition finance – helping industries and governments move toward cleaner energy – is seen as just as important as green finance.

In addition to energy projects, the EDB is focusing on improving water management, a crucial issue in Central Asia where 80% of the region’s water resources are used for irrigation, and 40% of that is lost due to outdated infrastructure. By modernising irrigation systems and introducing water-saving technologies, the bank aims to boost efficiency and reduce water loss, improving both agricultural productivity and food security in the region. PPPs are essential for attracting the investment needed to modernise these critical systems, the EDB said. 

Beyond direct investments, the EDB supports its member states in developing low-carbon strategies aligned with the Paris Agreement’s Nationally Determined Contributions (NDCs). With a current climate finance portfolio of $900mn, the bank is helping countries transition to more sustainable practices while providing technical assistance and research to guide the process.

The bank issued green and social bonds in 2021, raising KZT40bn ($87mn) for projects in renewable energy, water management, and SME support. These bonds were issued according to International Capital Market Association (ICMA) standards and fall under the EDB's Green and Social Debt Instruments Framework. The bank is reviewing its investments to ensure alignment with the Paris Agreement and increasing its focus on climate mitigation efforts.