FOR PARTICIPANTS ONLY MPDD/CSN/HLAPPD/APOA/2013 ENGLISH ONLY 27 February 2013 ECONOMIC AND SOCIAL COMMISSION FOR ASIA AND THE PACIFIC UNITED NATIONS ECONOMIC COMMISSION FOR EUROPE OFFICE OF HIGH REPRESENTATIVE FOR LDCS, LLDCS AND SIDS GOVERNMENT OF LAO PEOPLES DEMOCRATIC REPUBLIC ESCAP/OHRLLS/ECE/Government of Lao PDR Final Regional Review of the Almaty Programme of Action for the Landlocked Developing Countries 5-7 March 2013 Vientiane, Lao People s Democratic Republic DRAFT DISCUSSION PAPER 3 (C) INTERNATIONAL SUPPORT MEASURES TO NORTH AND CENTRAL ASIA LLDCs TECHNICAL SESSION 3 Enhancing international support measures for inclusive and sustainable development of the LLDCs (Priority 4 of APoA) The views expressed in this draft discussion paper do not necessarily reflect those of the United Nations or any other landlocked developing country mentioned herein. This draft discussion paper has been issued without formal editing.
CONTENTS Page 1. INTRODUCTION... 1 2. DEVELOPMENT ASSISTANCE TO LANDLOCKED DEVELOPING COUNTRIES (ODA): SOME RECENT TRENDS... 1 3. DOMESTIC SAVINGS AND FDI FLOWS TO LANDLOCKED DEVELOPING COUNTRIES: CURRENT TRENDS AND PROSPECTS... 2 4. PROMOTING REGIONAL AND SOUTH-SOUTH COOPERATION... 4 5. LOOKING FORWARD... 4 6. CONCLUSION... 6 2
1. Introduction Located in the heart of Central Asia, the ESCAP North and Central Asia Office (ENCA) provide assistance to 9 countries of the subregion, seven of which are landlocked developing countries (LLDCs), namely: Armenia, Azerbaijan, Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan and Uzbekistan. Three countries of the region: Armenia, Kyrgyz Republic and Tajikistan are receiving more than 63% of the total Official Development Assistance (ODA) allocated to all seven LLDCs countries of the region. It is also planned to increase the core aid in average by 19% for the countries mentioned. 2. Development Assistance to Landlocked Developing Countries (ODA): Some recent trends Distribution of ODA among LLDCs of the subregion is quite diverse, ranging from US$44.65 million for Turkmenistan to US$436.65 million for Tajikistan in 2011. Armenia, Kyrgyz Republic and Tajikistan are receiving US$1159.84 millions of the total US$1816.38 millions received by LLDCs of the subregion that same year. (table 1) Table 1. Development assistance from DAC Donors to NCA LLDCs, 2011 (millions of USD) Countries Country programmable aid Net ODA Armenia 358 342.82 Azerbaijan 187 153.11 Kazakhstan 158 223.93 Kyrgyz Republic 367 380.37 Tajikistan 318 436.65 Turkmenistan 35 44.65 Uzbekistan 263 234.85 Note: Country Programmable Aid (CPA) - also known as core aid, is the portion of aid donors programme for individual countries, and over which partner countries could have a significant say. CPA is much closer than ODA to capturing the flows of aid that goes to the partner country, and has been proven in several studies to be a good proxy of aid recorded at country level.(http://www.oecd.org) Source: OECD (2012), World Bank (2012) As indicated in the data below, Country Programmable Aid (CPA) will mainly increase by 2013 in comparison with 2010. Azerbaijan, Kazakhstan and Turkmenistan will see the decrease of CPA by average 3.36%. Significant increase of CPA is expected to Uzbekistan. (table 2) Table 2. CPA Disbursements, constant 2010 prices, USD millions (Projections) CPA Countries 2010 2011 2012 2013 % change from 2010 to 2013 Armenia 318 358 387 366 15% Azerbaijan 195 187 192 193-1% Kazakhstan 165 158 163 159-3.6% 1
Kyrgyz Republic 235 367 306 219 23.8% Tajikistan 358 318 292 294 17.9% Turkmenistan 36 35 35 34-5.5% Uzbekistan 217 263 352 374 72.3% Source: OECD CPA. 3. Domestic savings and FDI flows to Landlocked Developing Countries: Current trends and prospects There are three noticeable features pertaining to the dynamics of FDI s inflows in the Central Asian region over time under consideration i.e. 2000-2011. First, different Central Asian economies display asymmetric nature of being host to FDI inflows (Figure 1). For instance, over the period under consideration in the case of Kazakhstan FDI inflows have risen steeply from around US$ 2 billion to more than US$ 15 billion. On the other hand countries like Tajikistan and Kyrgyzstan have remained much weaker host of as FDI with their FDI inflows still hovering around US$ 1 to 2 billion. Secondly, it also shows that except Kazakhstan and Turkmenistan other CARs have remained as unattractive destination for global FDI inflows. Thirdly, the dynamism of FDI inflows differs in different CARs (Figure 1I). Since the volatility in FDI inflow on yearly basis was not clear in Figure 1, we have plotted the log values of FDI inflows to the CARs as presented in Figure 2. Quite clearly the trends suggest that in most of the CARs FDI inflows have been rather volatile. (table 3) Table 3. Savings rates and foreign direct investment in ENCA LLDCs Countries Gross Domestic Savings FDI inflows (% of GDP) (% of GDP) 2001-2003 2009-2011 2001-2003 2009-2011 Armenia 0.87 5.67 4.09 6.71 Azerbaijan 26.5 49 23.81 1.49 Kazakhstan 32.27 43.63 10.03 8.68 Kyrgyz Republic 12.27-0.63 1 8.56 Tajikistan -0.67-22.15 1.96 0.076 Turkmenistan 36.83 51.2 2.66 16.41 Uzbekistan 23.03 36.43 0.79 3.26 Source: ESCAP 2011 survey and UNCTAD. Box II: FDI Flows of CARs as Landlocked Developing Countries (LLDCs) Inflows to landlocked developing countries (LLDCs) reached a record high. The largest recipient of inflows was again Kazakhstan (37 per cent) and Turkmenistan (9 per cent). Inflows to Kazakhstan rose by 20 per cent, led by strong investment in hydrocarbons. However Turkmenistan experienced falls for the second year in a row. For example, although Turkmenistan attracted $3.2 billion of FDI inflows, these inflows have followed a downward trajectory since 2009. The recipients of the largest investments were Kazakhstan ($8.0 billion, compared with $2.5 billion in 2010), and Uzbekistan ($7.6 billion, compared with $2.4 billion in 2010), reflecting the destinations of large-scale projects. The receipts of these two countries represent 40 per cent of all Greenfield investments in LLDCs. Source: UNCTAD, (2012) 2
Figure 1: Dynamics of FDI Inflows in Central Asia (2000-2011) Source: Based on FDI annual flows data of UNCTAD stat Figure 2: Dynamics of Log (FDI) Inflows in Central Asia (2000-2011) Note: since the vertical axis scale is in log the negative values get dropped and so Kyrgyzstan series starts from 2001 and that of Tajikistan ends at 2009. Source: Based on FDI annual flows data of UNCTAD stat It is interesting to note that the CARs feature quite prominently amongst the largest Greenfield projects in landlocked developing countries in 2011, with Uzbekistan leading and followed by Kazakhstan and Turkmenistan. In terms of number of projects Kazakhstan leads with three projects followed by Uzbekistan and Turkmenistan with two each. In terms of the investment size of the projects Uzbekistan has attracted around US$5 billion worth FDI whereas Kazakhstan has been able to attract three projects worth US$ 4 billion. What also comes out clearly that the measure sources of these Greenfield projects in the CARs are primarily from countries like Russia, UK, Singapore, Canada and China. South Asia is conspicuous by its absence. (See Upendra) 3
4. Promoting Regional and South-South Cooperation The intra-central Asia exports/imports as a proportion of total Central Asian exports/imports to world have been rather low at 4.7 and 5.6 percent, respectively in 2010. It appears that an absence of a trade and economic cooperation agreement in CARs has among other factors constrained regional trade integration. Globalization has changed the way regional and subregional integration and cooperation is accruing. Regional integration is a complex process that is much influenced by the particularities of the each individual country, event and case, which is hard to approach by universal rules or political scenario. It is important to remember that by exchanging the Asian development experiences and South-South cooperation, it is possible to speed up the process of socio-economic growth and integrate South-South Cooperation in the region. 5. Looking forward: There are significant barriers to trade and investment integration in Central Asia pertaining to trade policy, connectivity, banking infrastructure etc. in the CARs. a) Market access: Trade-related Barriers: The more significant trade barriers pertaining to trade policy in the CARs include a complex tariff schedule and relatively high tariffs; escalation of tariffs; frequent and unpredictable changes in the tariff schedule (Kazakhstan, Tajikistan, and Uzbekistan); high implicit tariffs in the form of taxes that are levied on imported goods. Trade Facilitation and Procedural Bottlenecks: Trade facilitating customs procedures and rules are at differing levels of evolution in the CARs and they lack harmonization across countries, acting as a major bottleneck for intra- and extra-regional trade linkages. These not only include customs valuation and definitional issues but also procedural delays, complex documentation and inefficient clearances. Accession to WTO: A lack of WTO membership for the four non-member LLDC states, except Kyrgyzstan, Armenia and Tajikistan is a big constraint on trade flows as WTO-consistency in various rules makes trade regimes more harmonized and streamlined. Tajikistan joined the World Trade Organization on December 10 2012. It is Central Asia s second country, after Kyrgyzstan, to join the WTO. Kyrgyzstan joined in 1998. The Tajik parliament is to ratify the protocol before June 7, 2013, to confirm that the country fully accepts WTO membership terms. Tajikistan will become a full member of the WTO 30 days later. Kazakhstan, which is the region s leader in terms of foreign capital drawn into the country, is not yet a WTO member. Tajikistan is also the second post-soviet state, after Russia, to have been admitted to the WTO in 2012. The intensive political and economic integration process that started with the creation of Custom Union, is facilitating trade, transport and data sharing between the member states. In 2006, EurAsEC Interstate Council resolved that legal framework of the new 4
Customs Union be implemented for the time being by three states Belarus, Kazakhstan and Russia, and the rest of member states would accede the Union when their economies were ready. Officially the Customs Union became operative in 2010 upon introduction of the Universal Customs Tariff (UCT) and enactment of the Customs Code. The establishment of the CU has created a single market of 170 million consumers, a unified foreign trade and customs regulations, and a unified legal framework of technical regulations. Russia s accession to WTO has certain effects on Belarus and Kazakhstan. For smooth cooperation of its members, Agreement on the Customs Union Operation within the Framework of Multilateral Trade System was entered into force on August 22, 2012, whereby the parties have committed to use their best efforts to bring such trade system into compliance with WTO standards. The Agreement gave effect to amendments to the CU Commission Resolution on the Amended and Restated Universal Foreign Trade Classification of the Customs Union and the Universal Customs Tariff of the Customs Union. The Free Trade Zone Treaty signed on October 18, 2011 among the CIS member states will allow to protect foreign trade interests of the Customs Union members and to determine advantages of non-discriminative access to the state parties markets. The Eurasian Economic Commission (EEC) is a new supranational body that since January 1, 2012 supervises the integration processes between Kazakhstan, Russia, and Belarus within the existing Customs Union and the Single Economic Space (SES). A package of 17 basic SES agreements was signed and came into effect as of 1 January, 2012. Connectivity: Other significant barriers to trade in Central Asia are high transport costs and long and unpredictable transport times for international shipments to and from the CARs. This is not only because of the landlocked and remote location of the CARs and their difficult topography, but also due to deficiencies of their transport networks, high costs and low quality of transport and logistics services in the region, and difficulties with movements of goods and transport equipment across borders and through the territories of the CARs and neighboring countries. Air connectivity is yet another area which constrains trade and investment linkages restricting business-tobusiness contacts, educational services, health services, tourism linkages etc. This is particularly true of the linkages between the Central and South Asian regions. Telecommunications linkages also at times act as constraint, especially vis-a-vis South Asia. It has been found that internet regulatory policy varies across the CARs acting as a major constraint in smooth electronic connectivity, so very vital for intra and extra-regional trade and investment linkages. b) Productive capacity development: The LLDCs countries of the subregion could very conventionally be divided into three groups that differ in terms of the condition of, and sources of finance for, their balances of payments and, accordingly, sources of tax revenues. Group 1. Energy exporters (Kazakhstan, Azerbaijan, and Turkmenistan) have a significant export to GDP ratio, a positive balance of trade and a current account surplus. The share of raw materials exports in budget revenues is high. 5
These countries have financial reserves which were accumulated during the favorable part of the 2000s, which however reduced considerably during the 2008-2009 crises. At present, these countries have a budget surplus, which is, however, considerably lower than in the pre-crisis period before 2008. Group 2. The economies of Armenia, Kyrgyzstan and Tajikistan are financed, to a considerable extent, by remittances from labor migrants and with the support of diasporas. Although the majority of these countries have certain (mineral and/or agricultural) resources, they are not large enough to make exports determine economic dynamics. Group 3. Uzbekistan can be included in the third group. It has a diversified structure of exports and a considerable share of products with a relatively high level of processing, while they still have considerable raw materials exports. Figure 3. Productive capacity on NCA LLDCs Note: Standard deviations from the world average Source: Based on ESCAP 2011 6. Conclusion Strengthening of trade-investment linkages is a pre-requisite for achieving effective regional economic integration, an aspect often neglected in several FTAs more so in the context of the CARs. The real gains from an FTA result from efficiency-seeking industrial restructuring, which also builds productive supply capacities in relatively lesser-developed economies. This may essentially mean distribution of different stages of production in a particular industry regionally in an integrated manner viz. the vertical integration and specialization in the same stage of production with the help of product differentiation across the region viz. the horizontal specialization. This is the basis of argument highlighting the imperatives of investment cooperation within the ambit of the intra-central Asia investment integration as well as between Central and other subregion s economic integration process. 6
References EEC. Eurasian Economic Integration: Facts and Figures. Library of Eurasian Integration, 2012. ESCAP. Economic and Social Survey of Asia and The Pacific 2012: Pursuing Shared Prosperity. 2012: United Nations, n.d. OECD. Aggregate Aid Statistics Database. n.d. <http://stats.oecd.org>.. Country Programmable Aid: Partner Countries. n.d. <http://webnet.oecd.org/dcdgraphs/cpa_recipient/>. The_World_Bank. Net official development assistance received. n.d. <http://data.worldbank.org/indicator/dt.oda.odat.cd/countries>.. World Development Indicators. n.d. <http://databank.worldbank.org/ddp/editreport?request_source=search&cno =2&country=&series=BX.KLT.DINV.WD.GD.ZS&period>. UNCTAD. Statistical Database. n.d. <http://unctadstat.unctad.org/reportfolders/reportfolders.aspx?scs_referer=&scs_c hosenlang=en>. Upendra, Ram. http://northcentral-sro.unescap.org/documents/study-regional- Economic-Integration-in-Central-Asia_ENG.pdf 7