Central Asia: Doing business

Will Central Asia's commodity boom help pave the way for a new Silk Road?

That is the title of an article to appear in an edition of Standard & Poor's CreditWeek devoted to Central Asia, released to coincide with the annual meeting of the European Bank For Reconstruction And Development in Kiev on Sunday. The EBRD may not be so optimistic. 

With transition in Central Europe expected to be complete by 2010, the EBRD is increasingly moving its attention and resources east. Although Central Asia's hydrocarbons form a relatively small part of world reserves, they have disproportionate leverage in economies with small populations.

Yet despite the region's natural resource wealth, it is a gloomy place to do business. S&P writes that the region's leaders need to improve the quality of the business environment and prepare their countries for leadership transitions. Despite relatively rapid growth, the region is underdeveloped, poverty is widespread, investment has been rather low and access to world markets is restricted. The business environment is one of weak institutions, sub-par governance, social problems, increasing income disparities and isolation from major markets. Corruption is a large barrier to economic progress, encouraged by the region's autocratic regimes, lack of transparency and poor state of law and order. Economic over-reliance on extractive industries tends to reinforce the region's political and social underdevelopment.

Trustworthy cooperation between Central Asian governments in political and economic arenas is also practically non-existent, with few effective mechanisms having evolved from the ashes of the Soviet Union. Deals are vulnerable to the whims of the presidents who sanction them. Yet the EBRD may take heart from the region's record of more constructive cooperation where major outside players have been involved -- notably Russia and China, both of whom have pursued realpolitik in their relations with Central Asia.