Author: Evan A. Feigenbaum, CFR
Politicians in landlocked countries aim to foster balance among the larger countries on whom their economies depend for transit.
But with so many obstacles to continental trade and transit in Central Asia, is the effort worth the exertion?
There has been a lot of criticism of efforts to promote continental trade through Central Asia. But the prospective benefits undoubtedly outweigh the obstacles. And what is more, these efforts do not need to be undertaken multilaterally in some kind of regional ‘grand bargain.’ Cumulating separate and self-interested, but complementary, bilateral and ‘minilateral’ efforts and agreements among relevant countries can work just as well.
Landlocked economies can face a growth deficit of up to 1.5 percentage points because of high transaction and related costs. So why not try to help reconnect landlocked countries to the world economy and reduce their dependence on a single point of transit?
Central Asia has suffered greatly from a poisonous combination of landlocked geography and very bad economic policies. So as the United States prepares to draw down its military commitments in Afghanistan, it would be wise to renew attention to regional economics. In fact, that’s where a parallel strand of attention should have been squarely placed all along.
Progress toward fostering more integrated trade and transit regimes will be slow. There has already been a decade of effort by the international financial institutions, particularly the Asian Development Bank, through its Central Asia Regional Economic Cooperation program, and the World Bank. And regional governments, leading scholars and the Bush administration have also been in this mix.
A central challenge to facilitating regional transit is that enthusiasm for cooperation is often far greater in Washington than in Central Asian capitals. While the US has been actively involved in promoting regional arrangements for two decades, it has had very few successes.
At the same time, Central Asian countries desperately need to cooperate with each other. For nearly 20 years, their need for cooperation has too rarely translated into complementary policies. Central Asians and their neighbours are acutely dependent on one another, yet this reality is deeply disquieting to many.
Another challenge is that an Afghan-centred effort is bound to meet especially high hurdles. Fostering regional trade and transit would all be a lot easier with Iran in the picture. But that is just not going to happen. Iran’s non-compliance with International Atomic Energy Agency safeguards agreements, and its defiance of UN Security Council resolutions, virtually guarantee the US will oppose such linkages. And Washington should be prepared for growing tension with Central Asian states as it enforces Security Council resolutions that call for enhanced vigilance over financial transactions.
But put the US aside for a moment. The more interesting question is whether developing better policies for continental trade and transit is worth the effort for Central Asian states themselves. The short answer is, yes.
A 2004 paper from scholars at Columbia University helps to show why. The paper highlighted four types of dependence that hamper the development prospects of landlocked economies: dependence on neighbours’ infrastructure, dependence on sound cross-border political relations, dependence on neighbours’ peace and stability, and dependence on neighbours’ administrative practices.
Landlocked geography can be poisonous. But such dependencies on neighbours can be especially pernicious as well.
The Columbia paper pointed to four options from which Central Asian governments could draw some lessons.
First is to invest in internal infrastructure to lower transportation costs.
Second, they should invest in regional integration strategies — something Hillary Clinton’s ‘New Silk Road’ and the prior Bush administration effort aimed to do. It will not matter if only one Central Asian country gets its infrastructure right — everyone needs to get it right.
Third, regional integration strategies ‘need to focus on administrative coordination’. That means getting customs and border procedures right — something the international financial institutions and the US have focused on for years.
And finally, landlocked countries should invest, where possible, in sectors less affected by transport costs. This will be difficult for Central Asian countries to do, but Kazakhstan, for example, has sought to develop some elements of a services economy.
One of the more trenchant critiques of these various regional efforts in continental Asia is that their origins lie in geopolitics, not economics. But there is plenty of research on the economics of landlocked countries to show why unfortunate geography can be tragic. The real tragedy is that it does not have to be.
Evan A. Feigenbaum is Adjunct Senior Fellow for East, Central and South Asia at the Council on Foreign Relations.
A version of this article was first published here on the Council on Foreign Relations website.