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Central Asia: Trade With Southern Neighbors Fails To Take Off

Economists predicted after the collapse of the Soviet Union that the newly independent Central Asian nations would extend their trade links with Iran, Pakistan, and Turkey, creating a new trading bloc of Islamic non-Arab countries. A recent study, however, says trade has not increased to the extent that was hoped.

London, 10 January 2000 (RFE/RL) -- Since independence from the Soviet Union, trade between the five Central Asian nations and their Islamic neighbors has grown from a very low base. But the volume of trade between the five and Iran, Pakistan, and Turkey still remains disappointingly small.

That is the finding of the recent study, "Central Asia Turns south," by Richard Pomfret, a professor of economics at Adelaide University, Australia. The study was published by the Royal Institute of International Affairs in London.

In the Soviet era, Uzbekistan, Kazakhstan, Turkmenistan, the Kyrgyz Republic, and Tajikistan were sealed off behind one of the longest borders in the world. Their trade was overwhelmingly carried on within the USSR, and economic links to the south were minimal.

The 1991 collapse of the Soviet Union transformed the geopolitical situation of these five nations, and with it their prospects for trade. Analysts said it was only natural they should forge a new relationship with their southern neighbors: Iran, Pakistan, and Turkey.

That new relationship seemed to take off in 1992, when the five Central Asians (plus Azerbaijan and Afghanistan) joined the Economic Cooperation Organization (ECO), a regional grouping founded in 1985 by Iran, Pakistan, and Turkey. It was hoped the ECO would serve as an umbrella for facilitating trade. There was even talk of creating united economic zones, freer regional trade, and a customs union. But while Central Asians' trade links with southern neighbors have increased, they are still less significant than links to countries outside the region.

Why has trade been so slow to develop? One reason, the study says, is that the physical infrastructure of the region does not favor rapid expansion of regional trade. The region lacks long-distance highways. Existing roads are poor, and railroads are underdeveloped. These transportation problems make it difficult to move goods. Moreover, the former Soviet republics' main rail, road and pipeline links lead north to Russia, or west through the Caucasus. There are no rail or pipeline links to the south, and only poor road and waterway links.

But inadequate transport is not the main problem. The study says the crucial reason why trade has been so slow to develop lies in the "similar nature of the national economies" of the Central Asian nations, and their partners in the ECO regional grouping.

All the 10 ECO members are producers of primary products, and have only a limited range of commodities -- such as cotton, minerals, oil and gas -- for export. The narrow export base of these countries, and their possession of similar commodities, means the ECO economies are not complementary to one other, but must compete with each other.

The main reason, therefore, why intra-ECO trade has not boomed is the similarity of resources of the three original members and five Central Asian countries.

To take some examples: Cotton is important for Turkey and especially for Pakistan, for which cotton and cotton-based goods account for more than half of merchandise exports. But cotton is also crucial to Uzbekistan, where it is one of two (along with gold) main exports, and to Turkmenistan, where cotton accounts for 20 percent of exports. Similarly, energy products dominate Iran's exports, but they are also crucial to Kazakhstan and Turkmenistan.

For many of these countries, their natural export markets lie outside the region -- in East Asia, Western Europe, or North America -- not within the region. Natural suppliers of import goods -- particularly high-tech goods -- are also outside the region. The study says Turkey and, to a lesser extent, Pakistan and Iran have more diversified manufacturing sectors that can provide some consumer goods to Central Asia, but even in these product lines the major suppliers are outside the region.

Despite the cultural and historical motives for the Central Asians to look south, the study concludes, the economic logic behind strengthening relationships with their southern neighbors is weak. The study says some trade across the previously sealed borders has started up naturally and will continue to flourish. But it concludes that Iran, Pakistan and Turkey will not become major trading partners of the Central Asian countries.