ONE BELT, ONE ROAD AND CENTRAL ASIA: PARTNERSHIP FOR GROWTH

ALEXEY KALININ SKOLKOVO Institute for Emerging Market Studies (IEMS) Director

ONE BELT ONE ROAD: GLOBAL PERSPECTIVES

May 15, 2017 Beijing

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One Belt, One Road

is the largest ever complex development initiative

Central Asia and Caucasus

is one of the most unknown, diverse and volatile regions

Unknown is a risk but also a promise.

SKOLKOVO invites you to the wonderful expedition to Central Asia and Caucasus. Come along!

•  Central  Asia  and  Caucasus  have  always  been  at  the  crossroads  of  civiliza7ons,  ancient  Silk  Road  •  CAC  countries  have  never  existed  in  the  current  borders  –  it  is  the  Soviet  legacy  •  For  the  last  25  years  the  region  has  been  inward  looking  –  focused  on  solely  internal  issues  •  But  Interconnectedness  means  interdependence:  caravan  is  just  as  fast  as  its  slowest  camel  

AND

There is no such thing as CAC internal issue. Not anymore.

Risk or Promise?

•  Eight countries

•  85 million people

•  4 188 thousand sq km •  Over 100 ethnicities

•  Speaking more than 30 languages

•  Practicing all the world’s major religions

•  Median  age  is  less  than  27  years  old  •  ~100%  literacy  rate  and  50%  ter7ary  enrollment  rate

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Heartland

AT A GLANCE

Diverse political models Political models vary significantly, from true democracy in Kyrgyzstan, to conservative and authoritarian Turkmenistan, to progressive autocracy in Kazakhstan.

Different economic systems Represents various systems – e.g. Kazakhstan and Turkmenistan – enjoying the benefits of oil and gas development. Kyrgyzstan, Tajikistan and Uzbekistan rely more on the Soviet industrial legacy and on leveraging agriculture potential.

Versatile social and cultural capital Remarkable cultural legacy and significant demographic dividend. In the past 25 years the population it has increased by 34.4%. Broad religious group – Muslims, Christians, etc.

Uneven business environment •  GDP growth – from 1,1% in Azerbaijan to

8% in Uzbekistan (2017)

•  Human Development Index – from 56 in Kazakhstan (highest development in CAC) to 129 in Tajikistan

•  Doing Business – from 24 in Georgia, to 132 in Tajikistan

•  Competitiveness Index - from 37 in Azerbaijan to 111 in Kyrgyzstan

•  Internet Penetration – from 14,3% to 70,1%

•  Total FDI since Soviet era end – > 200 bn USD

•  Large logistics projects with some reaching 52bn USD (Western Europe – Western China Highway Eurasia megaproject)

CAC is a diverse, complex and dynamic region, combining ancient culture and traditions with forward-looking aspirations

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Diversity

The CAC region is located on the crossroads between Russia, China, the Islamic World and the West. Political and economic dynamics in neighboring countries have a direct effect on the heartland

Universal partners •  Russia – One of the main political and trading

partner, and security guarantor. The most desired destination for regional labor migrants.

•  China – An important trade and investment partner. Major creditor. Third popular destination for education scholarships, after USA and UK

Sectoral development partners •  Japan - balancing power in the region opposing to China

and South Korea. Main interest: diversification of energy supply sources. Leading partner for technological and innovative solutions.

•  South Korea – Engagement areas: construction, infrastructure, automobile assembly, energy & mining sector, digitalization, agribusiness

•  India – Bottom of the pyramid goods. Qualified migration, possibly into CAC

Islamic powers •  Turkey – Pan-Turkism. Transfer point for oil and

natural gas from the Caspian basin for Western markets. Funding of Sunni education.

•  Iran - Potential new regional leader, balancing to Turkey and Saudi Arabia. Geographically connected, Caspian sea sharing with CAC

•  Saudi Arabia – Interest in agriculture, Islamic finance in CAC. Growth of islamisation in CAC, religion tourism quotas and funding of Sunni religious education

Security, institutions and development partners •  US - Corridor for Afghan operations. Decreasing

influence in CAC, but stable in South Caucasus. Interests in energy sectors. In top 10 FDI providers.

•  Europe - In top 10 FDI providers in the region and large trade partner. Promoting Human rights and democratic values

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Geo-Economic Context

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Eurasian Economic Union Russia supports the expansion of EEU (Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia), which provides for economic opportunity of almost a 200 million consumers’ market. Shanghai Cooperation Organization SCO continues to grow and is to include India and Pakistan to join soon. It should become the largest political/ security block on the Eurasian continent Collective Security Treaty Organization (ОДКБ) Security block between Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, Tajikistan. SCO and CSTO can become the guarantor of the regional security.

Greater Eurasia project – partnership of EEU countries and China, India, Pakistan, Iran, former Soviet states and other interested parties on the Eurasian continent.

Political transition CAC is still in the process of transition from planned to market economies. Security – disputes, conflicts ISIS risks, potential border conflicts (Nagorny Karabakh, Fergana Valley), Ethnic conflicts (Kyrgyzstan and Uzbekistan), water security disputes (Uzbekistan and Kazakhstan, Uzbekistan and Tajikistan). Migration Ethnic and labor migration from the CAC into Russia, South Korea, Turkey and the Middle East

INTEGRATION PLATFORMS

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Dynamics

INTRAREGIONAL PROCESSES

Opportunities

•  Eurasian integration platforms – Eurasian Economic Union and Great Comprehensive Eurasian Partnership

•  Political transition in the CAC region

•  Digitalization

Threats

•  Migration and Brain Drain •  Terrorism (ISIS, traffic)

•  Intraregional conflicts (ethnic, territorial, water)

Strengths

•  Strategic location (Heartland) •  Natural resources (KZ, AZ, TM)

•  Human Capital: •  educated

•  entrepreneurial

•  ethics

Weaknesses

•  Infrastructure •  Transport

•  Water and Energy •  Communications

•  Institutions

•  Inclusivity

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SWOT Analysis

•  Recognize the regional, diversity, national identity, culture and heritage

•  Implement multi-stakeholder approach and governance, including •  Involving and engaging with regional organizations like Eurasian

Economic Union, etc. •  Using blended/hybrid new financing instruments

•  Build local legacy (not only transit): •  human capital development •  local empowerment and capacity building •  preservation

“In order for the participating countries along the Belt and Road to fully benefit from the potential of enhancement activity, it is crucial to strengthen the links between initiative and Sustainable Development Goals. Those seventeen goals can guide policies and action under Belt and Road towards true sustainable development”.

UN Secretary-General Antonio Guterres at the opening ceremony of Belt and Road Forum,

Beijing, May 14, 2017

BEYOND JUST BUSINESS

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Success Factors

SKOLKOVO – HKUST Memorandum of Understanding Signing Ceremony

On October 17th, 2016 Memorandum of Understanding between Moscow School of Management SKOLKOVO and Hong Kong University of Technology Business School was signed in presence of Russian Federation Prime Minister Dmitry Medvedev.

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SKOLKOVO  –  HKUST  Memorandum  of  Understanding  Signing  Ceremony  On  October  17th,  2016  Memorandum  of  Understanding  between  Moscow  

School  of  Management  SKOLKOVO  and  Hong  Kong  University  of  Technology  Business  School  was  signed  in  presence  of  Russian  Federa7on  

Prime  Minister  Dmitry  Medvedev.  

“Certainly, high quality integration is only possible if we have such a groundwork as good human capital - well qualified personnel, technological and scientific basis.

In order an to have this groundwork we suggest that we should work together in educational platforms and strengthening the cooperation of the universities and business schools”. President Vladimir Putin

at the opening ceremony of Belt and Road Forum, Beijing, May 14, 2017

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More details to follow in the special report on Geoeconomics of Central Asia and Caucasus – coming soon.

Education is the Key