Central Asia Investment and Competitiveness Trends for the Next Decade

An Austria-OECD-WEF event

Remarks by Angel Gurra, Secretary-General OECD

Davos, Thursday 27th January 2011, 12h30-14h00

Chancellor Faymann, Distinguished Guests, Ladies and Gentlemen, Thank you for joining us at this roundtable, organised by the OECD, the Austrian government and the World Economic Forum. It is a great pleasure to be in Davos to launch the OECDs first Central Asia Competitiveness Outlook. This report is the product of two years of collaboration between the OECD, the economies of the region, Austria and the World Economic Forum, through the OECD Central Asia Competitiveness Initiative. Let me give you a taste of this report on the economic achievements and main policy challenges of this grand and noble region, as a Venetian traveller named it centuries ago. The theme of this years Annual Meeting here in Davos is Shared Norms for the New Reality. Indeed, we are in the midst of a new reality. The centre of economic gravity is changing. It is moving from West to East, from industrialised high-income countries to emerging economies. This is what we call Shifting Wealth. While the most advanced economies are struggling with low growth, high unemployment and unsustainable fiscal deficits, emerging economies are innovating, improving their productivity and boosting their competitiveness. As a result, they are attracting new waves of investment. According to our Perspectives on Global Development, we anticipate that emerging and developing economies will account for nearly 60% of world GDP by 2030. Central Asia is poised to become a significant actor in this new global paradigm and the next frontier of economic opportunity for the worlds investors. The regions economic dynamism has been impressive. During the last decade, labour productivity grew above world averages, foreign direct investment flows into Central Asia multiplied by nine[1] and the regions gross domestic product grew, on average, by 8% per year [2]. This is remarkable! However, like other regions around the world, Central Asia has to implement far reaching structural reforms to consolidate its competitiveness and anchor growth in a sustainable way. Our Central Asia Competitiveness Outlook provides important insights in helping policy makers set needed reforms in motion to make the most of the regions full potential. This region enjoys a considerable number of comparative advantages. It is located at the crossroads of Asia and Europe and its dynamic neighbours -- Russia, India and China -are increasingly investing in the region. And this is not surprising.
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UNCTAD World Bank, World Development Indicators

Some Central Asian economies hold an estimated 65 years of oil reserves, 223 years of gas reserves and 308 years of coal reserves [3]. In addition to energy sources, the region has a strong agricultural potential. By the close of the next decade, the region may become the wheat breadbasket of the world [4]. Last but not least, its population of 92 million people [5] has almost universal literacy skills, which is a corner stone of economic success. However, our Central Asia Competitiveness Outlook also identifies three major challenges ahead. First, the deteriorating education system is creating a growing gap between worker skills and the needs of the job market. Second, overly stringent requirements for access to finance in particular for small and medium enterprises (SME) are constraining private sector development and growth in the region. Third, over-dependency on natural resources is a major challenge: as much as two-thirds of FDI to the region goes to the energy sectors. This means that countries are exposed to the uncertainties of international markets, which as the crisis has shown, carries many dangers. The Central Asia Competitiveness Outlook provides specific recommendations to advance in all these areas: To close the skills gap, policy makers and the private sector need to work closely together to ensure that the labour markets needs are reflected in the educational system and that a good balance is struck between tertiary education and vocational training. To bridge the financing gap for SMEs, governments need to further develop guarantee schemes that help mitigate investor risk, so that small businesses get the capital they need to grow. Attracting investors to non-energy sectors is also a priority. This could be achieved by implementing a second generation of reforms in land ownership regulations and actively promoting these new sectors to potential investors. To harness the full competitiveness potential of their economies, Central Asian policy makers will also need to engage with the private sector in improving the regions investment policy frameworks and investment promotion strategies.

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USDA Agricultural Projections to 2019, Feb 2010 and OECD Analysis World Bank, World Development Indicators (Afghanistan, Kazakhstan, Kyrgyz Republic, Mongolia, Tajikistan, Turkmenistan, Uzbekistan)

Moving forward will require hard work, international co-operation and systematic dialogue. This is why our partnership is ever more important. Ladies and Gentlemen: The time for the new emerging economies has come. Investors are learning to look beyond the BRICs for promising business opportunities. The countries of Central Asia can greatly benefit from this trend. But competition for capital is fierce. In Africa, the Middle East, Latin America and East Asia, growing markets are already attracting new investments. The countries with the best combination of structural reforms, innovative policies and social programmes will make the most of this new era. The OECD is ready to help Central Asia raise its competitiveness and turn this tide to its benefit. We are ready to work with you to develop and implement best practices and international standards. This region was once an effervescent hub of culture, trade and spiritual enlightenment. At the OECD, we believe it has the elements to become a new hub for economic prosperity and social progress. Lets make it happen! Thank you very much.