Alla Ramilova, PhD Managing Director Swiss Association
‘Alpine Arena for Friendship’, Coordinator SRG PA OSCE
conference in Switzerland
Over recent years, the Central Asian states, especially
Kazakhstan and Uzbekistan, have made targeted efforts to
create comfortable conditions and an attractive ecosystem
for Western direct investment and cutting-edge technologies.
According to international experts, these state measures
will eventually result in a favorable investment and
business environment and certainly affect the geopolitical
role of Central Asia.
Shifting priorities and new players
In recent decades, The People’s Republic of Chinas (PRC) has
been the undisputed protagonist of major economic news and
the source of inspiration for political mainstreams on the
Asian continent. The global Belt and Road Initiative (BRI)
was to be the culmination and formalization of the China’s
dominance on the continent and beyond. This grandiose
development and infrastructure investment program connecting
Asian and European continents was aimed at bringing together
Eastern and Western economies. It was supposed to attract $1
trillion in Chinese investments, mainly allocated to
developing countries in Asia but also in Latin America and
Africa. According to the Global Development Policy Center at
Boston University, from 2008 to 2019, the total amount of
loans made by the two leading Chinese banks in developing
countries ($462 billion) was only slightly below the total
amount of lending by the World Bank for the same period
($467 billion).
In previous issues of the special ‘West +
East’ project we have touched on various aspects of the BRI
process, including western Europe’s critical stance towards
the initiative. In particular China’s lending policies,
which are the cause of debt crises in many developing
countries, have faced sharp criticizism. According to
international experts, there has been a gradual reassessment
by the Chinese leadership of the goals and objectives
associated with the BRI and economic expansion abroad over
the last couple of years. The statistics support this, the
total volume of foreign lending by the China Development
Bank and the Export – Import Bank of China has significantly
decreased from $ 75 billion in 2016 to only $ 4 billion in
2019.
The Chinese authorities and Chinese financial
institutions are facing huge repayment and loan management
issues with emerging recipient countries. By the end of
2020, China was involved in 18 debt restructuring
negotiations with 12 countries totaling $28 billion.
In the
coming years, the Chinese authorities will significantly
reduce the external credit expansion while dealing with the
restructuring of already issued loans, and reorient
investment and financial flows for domestic needs, according
to analysts.
China’s reduction of investment and credit
programs around the Belt and Road Initiative may cause a
serious financial and economic crises in developing
countries already involved in the BRI.
According to the Asian Development Bank, if the credit and financing crisis
continues, it will threaten developing countries with a
yearly infrastructure underfunding of $907 billion.
According to international experts, the financial crises
provoked by China’s expansionist lending policy in
developing countries, as well as political contradictions
between the ‘Celestial Empire’ and the West, worsened as a
result of the pandemic. This will lead Western countries and
international financial institutions to start revising
economic policies and priorities in the Asian continent. The
geopolitical focus of cooperation may shift to other
countries and subregions of the Asian continent.
The region
of Central Asia seems promising in this regard. Of course,
the region’s economic weight and geopolitical influence
doesn’t compare to that of larger counterparts, such as
India, New Zealand, South Korea and others, but it has
important competitive advantages that can affect the balance
of power and the economic configuration of the Asian
continent in the future.
Competitive advantages of Central Asia
Over the recent years, the internationally commonly
recognized classification as ‘Central Asia’ refers to the
Asian subregion, which includes countries such as Kazakhstan,
Uzbekistan, Kyrgyzstan, Turkmenistan and Tajikistan. A total
of 72,960,000 people live in Central Asia. The most populous
state in Central Asia is Uzbekistan with a population of
about 34 million.
According to the IMF, the total GDP of the
Central Asian countries in 2019 amounted to $300 billion. To
date, the combined share of Central Asian economies in that
of the world economy is small, accounting for about 0.3% of
it. However, according to UN forecasts, intense regional
cooperation alone could double the size of the local GDP in
the next five years.
Kazakhstan is the largest economy in
the region, accounting for 60% of the regional GDP.
Kazakhstan is also the region’s leader in foreign direct
investments, attracting 77.7% of such investments in Central
Asia. In addition to Kazakhstan, Uzbekistan also rightly
claims to be the driver of regional market reforms. After
the change of political leadership, the country announced a
course towards economic liberalization, with a set of
relevant reforms in the legislative, monetary, fiscal and
other spheres, which immediately affected its economic
growth rates.
One of the important competitive advantages of
Central Asia, also of geopolitical interest to the West, is
its geographical location. Being at the heart of the
Eurasian continent between Russia and China, Central Asia is
the historical site of the legendary Silk Road linking Asia
and Europe. Today, it is the main ‘section’ of China’s
global Belt and Road Initiative. It is no coincidence that
it was in Central Asia, specifically in the capital of
Kazakhstan, that Chinese leader Xi Jinping announced the
launch of a new global initiative in 2013.
According to the
Central Asia Data Gathering & Analysis Team, the Central
Asian countries account for 261 projects and at least $136
million in planned investments under the BRI. One symbolic
example is the ‘Western Europe – Western China
Intercontinental Highway’, a 8,455 km long highway through
Russia and Kazakhstan connecting Western Europe to China.
In an attempt to balance China’s disproportionate increase in
influence, the Central Asian states have made corresponding
legislative efforts, such as Kazakhstan’s moratorium on land
leasing by foreign entities.
On the other hand, expanding
economic cooperation with leading Western economies is a
guarantee of economic and geopolitical stability in the
region for Central Asian countries. For the leading Western
countries, a stronger economic presence in Central Asia
could give them additional leverage in the Asian continent,
especially in the face of a potential crisis caused by
Chinese economic expansion.
The structure of Central Asian
economies makes the region an interesting strategic priority
for the world’s leading powers and attractive to
international business. The Central Asian economies are
characterized by their rich resource base, but also by their
archaic production systems, economic institutions in early
stages of formation and a shortage of technologically
advanced industries.
The Central Asian states are the
repositories of most of the elements in Medeleev’s periodic
table: 7.2% of the world’s oil reserves, 7% of the world’s
gas reserves, the tenth-largest coal reserves and the
ninth-largest gold reserves in the world. In other words,
this compact 4,003,451 km2 territory produces the most
demanded resources in the world’s economy. The New Silk
Road’s development projects should make the access to these
resources much easier in the future.
A Developed Financial Environment – the key to the
Success
An essential part of the discussion around Central Asia’s
integration into the world economy is the ongoing effort to
develop financial infrastructures for a successful business
environment. Of course, this includes so-called
‘international financial centers’ which have become
particularly popular.
The Astana International Financial
Center (AIFC) created in Kazakhstan in 2015 is the most
systematic in its idea and holistic in its implementation,
as the last years have shown.
Based on the infrastructure of
the International exhibition EXPO – 2017, held in the
capital of Kazakhstan in 2017, the AIFC began its activities
in 2018. A number of important financial bodies have been
established within a short amount of time. This includes the
Astana International Exchange, the International Arbitration
Center, the Astana Financial Services Authority, the AIFC
Court, AIFC Green Finance Center and various educational
centers. As of today, 659 companies from different countries
use the services of the AIFC.
In its development strategy,
the AIFC primarily focused on three large dimensions: the
Eurasian Economic Union, Central Asia and the global Belt
and Road Initiative.
When addressing the prospects for the
development of an international financial hub in Central
Asia, Filippo Lombardi, a Swiss politician, one of the
initiators of the Silk Road Support Group of the OSCE PA and
coordinator of the Swiss-Kazakh Parliamentary Friendship
Group, noted that ‘the AIFC is in many ways a unique project
with its potential only still at the very beginning of
realization. In a short period of time, it was managed to
create a comprehensive legislation and to form working
financial and legal bodies, compactly located in one area.
‘An unquestionable advantage of the AIFC’ – continues
Filippo Lombardi – ‘is that English law, familiar to many
international operators and enshrined in the Constitution,
applies in this area. Although inspired by the successful
development experiences of globally recognized financial
centers (London, New York, Dubai, Hong Kong, etc.), the
management of the AIFC did not simply replicate them
automatically. Instead, the Kazakhstan center wants to
create its unique niche by taking into account the
geopolitical situation, local features of Asian economies
and rapidly changing tendencies of the international
financial market. The structural shifts that inevitably
await the world economy at the end of the pandemic may
actually serve as a trigger for the rapid rise of the AIFC.
We’re talking, amongst others, about changes in traditional
production and supply chains, the debt crisis of developing
countries, including Asian countries and the growing
contradictions between Western countries and China’.
Speaking of new prospects, Filippo Lombardi drew attention
to the fact that strengthening cooperation between
Switzerland and Kazakhstan, especially in the financial
sphere and through the AIFC, could be interesting for both
countries. ‘Small Switzerland, as a kind of technology ‘boutique’,
including the financial sector, could assist Kazakhstan in
the development of new business models and their promotion
in other countries.’
Helvetistan – a partnership between Switzerland and
Central Asia
The formalization of the partnership and special
relationship between Switzerland and the states of Central
Asia began in May 1992, when Switzerland became one of the
shareholders of the International Monetary Fund. In addition
to Switzerland, the newly independent Central Asian states
of Kazakhstan, Uzbekistan, Tajikistan, Kyrgyzstan and
Turkmenistan were admitted to one of the sixteen groups of
shareholders of the IMF. The group was named ‘Helvetistan’,
inspired by Switzerland’s historical and symbolic name ‘Helvetia’.
Switzerland is the country with the most votes in the Group
(59 out of 145) and is the only country with a developed
economy according to the IMF classification. Thus,
Switzerland has not only assumed leadership of the IMF Group,
but also a sort of ‘patronage’ role and responsibility for
its colleagues – emerging and developing economies in the
Group, such as the Central Asian states.
Commenting on
Switzerland’s relations with Central Asia, Filippo Lombardi,
former president of the Swiss Senate, emphasized that ‘For
Switzerland, the Helvetistan format and relations with
Central Asian states are very important. Having become a
member of the World Bank institutions in 1992 in a group
with Central Asian countries, Switzerland regularly develops
a set of priority programs for Central Asia, which are based
on technical assistance in economic reforms and the
development of democratic institutions in the former Soviet
republics.’
Specific examples of cooperation are primarily
in areas of the so-called ‘Blue diplomacy‘. Switzerland
develops and implements joint measures with the Central
Asian countries to promote crossregional dialogue and
cooperation in the field of distribution and efficient water
resource management. Another area of focus are the programs
promoting employment and economic development by expanding
the private sector, especially small and medium-sized
enterprises. Switzerland also implements various ‘good
governance‘ programs and promotes cooperation in the field
of education and culture.
Undoubtedly, such strategic
programs create a solid base for strengthening bilateral
trade and economic cooperation. Switzerland ranked first in
the list of exporters from countries such as Uzbekistan and
Kyrgyzstan, and ranks third in terms of volume of foreign
direct investment in Kazakhstan.
Commenting on the prospects
of relations between Switzerland and Kazakhstan, Kazakh
Ambassador to Switzerland Alibek Bakaev said that
‘Switzerland is an important and reliable European partner
both for Kazakhstan and for the whole of Central Asia.
Switzerland’s political neutrality and impartiality are
important conditions for the development of stable and
progressive relations. As for economic cooperation,
Switzerland’s location at the center of Europe creates a
convenient platform for many Kazakh companies to cooperate
with European countries.’
Alibek Bakaev adds that ‘The
Embassy of Kazakhstan also provides comprehensive support to
Swiss companies interested in doing business in Kazakhstan.
In recent years, we have seen the emergence of complex
projects involving companies from other countries, in which
the Swiss side acts as a coordinator for and supplier of
technology.
One striking example is the creation of a system
of pig farms in Kazakhstan, the end products of which will
be oriented towards the Chinese market. This project is
based on the technology of the Swiss company SUISAG. The
assumption from the Kazakhstani side is that financial and
investment bodies and various development institutes will
take part in it. This project can serve as a model for
similar plans in other industries.’
With the Participation of Alexandra Furio,
University of St. Gallen
