“Enhancing Investment and Competitiveness in Central Asia and the South Caucasus:  Proposals for Action”

With Dr. Rainer Geiger, Deputy Director, Financial and Enterprise Affairs, Organisation for Economic Co-operation and Development (OECD), Paris, France, and

Torek R. Farhadi, Head, Investment Promotion Technical Assistance Program, Islamic Development Bank Group

Tuesday, October 9, 2007

Forum Summary

Forum audio is available by clicking here.

This event on possible avenues for economic development in Central Asia and the Caucasus featured Dr. Reiner Geiger, Deputy Director for Financial and Enterprise Affairs at the Organization of Economic Cooperation and Development (OECD) in Paris, and Mr. Torek R. Farhadi, Head of the Investment Promotion & Technical Assistance Program at the Islamic Development Bank.

Prof. S. Frederick Starr, Chairman of the Institute, introduced Dr. Geiger and Mr. Farhadi, thanking them for being available to participate in the event at short notice.

Dr. Geiger began his presentation by outlining the common challenges for economic development in Central Asia and the Caucasus today. In his view, both regions bear enormous untapped development potential. Creating conditions for peace and stability, improving the investment environment, enhancing public and private governance in an effort to improve confidence as well as spreading the benefits of development constitute the central tasks in Central Asia and the Caucasus.

At this point, Dr. Geiger made a side remark regarding the problems of Afghanistan and invited Mr. Farhadi to make a few comments. The latter pointed to the problems of landlocked countries, which rely on good relations with their neighbors in order to get access to a sea port. Mr. Farhadi went on to mention the unequal distribution of natural resources among the countries of Central Asia and the Caucasus and the need for those countries with little endowment to find export niches, given the harsh competition from China with regard to manufactured goods.

Dr. Geiger continued his talk by elaborating on some of the initiatives undertaken. They involve regional institutions, bilateral programs and the participation of international organizations. Dr. Geiger mentioned the Black Sea Economic Cooperation and the new EU strategy for both Central Asia and the Black Sea. All partnerships focus on an integrated approach to investment, competitiveness and sustainable development. Rather than becoming mere talk shops, there is a true need for these initiatives to yield concrete results in the field by addressing the deficiencies of the regions.

The latter became especially apparent when Dr. Geiger gave a brief overview of the status of foreign direct investment (FDI) in the South Caucasus and Central Asia. While FDI has picked up markedly over recent years, it is highly concentrated on the energy sector and thus on countries like Kazakhstan and Azerbaijan. But even when oil-rich countries are not excluded, per capita FDI in both regions is much lower than in other parts of the developing world.

Dr. Geiger went on to identify the quality of the investment environment as a constraint on FDI in Central Asia and the South Caucasus. While the regions offer advantages like a cheap and highly skilled labor force, natural resources, progress on liberalization and macroeconomic stabilization, there remains a high perception of risk to FDI owing to administrative barriers, weak institutional development as well as largely underdeveloped infrastructure.

According to Dr. Geiger, competitiveness and investment must be increased by pursuing crucial reforms, like improving the legal and institutional environment, increasing FDI, and developing local investment through entrepreneurship. Due to regional differences, the OECD has created two initiatives, one on Central Asia and one on the South Caucasus.

Participation of the OECD can bring considerable advantages, from transferring good practices and experience by providing guidelines for investment reforms to building capacity by strong involvement of participating governments and private sector entities. Dr. Geiger stressed that the OECD applies an non-prescriptive approach and focuses on sharing experience and letting the countries themselves decide on where to set their priorities. The success of this approach has been proven in Southeastern Europe.

Hence, the Business Climate Development Strategy relies on national policy assessments as well as regional policy networks, both of which must create an agenda of deliverables and stick to it. A participatory structure that involves the country in need, the OECD and a OECD partner country is most efficient. Different subnetworks on investment policy, trade, enterprise development and the public sector complement the strategy.

Dr. Geiger summarized the key factors for success, namely the national control over the process with a strong commitment on measurable results, the focus on needs and their priorities, intermediate checks and the pooling of resources in order to reach a critical mass of financial contributions. Above all, international and regional partnerships are key to creating win-win situations.

The Central Asia-Caucasus Institute forms part of a Joint Center with the Silk Road Studies Program at the Institute for Security and Development, Stockholm. The Institute sponsors impartial research on the region, acts as a forum for policymakers both in Washington and abroad, shares information concerning the region and provides access for its sponsors in business to relevant expertise on the region. Additional information about the Institute is available at www.silkroadstudies.org.