Central Asia has vast potential for development despite its unique challenges and opportunities, according to Hela Cheikhrouhou, the International Financial Corporation's (IFC) Regional Vice President for the Middle East, Central Asia, Türkiye, Afghanistan, and Pakistan. Cheikhrouhou highlighted the region's growing population, which provides a large market for sales and an expanding labor force.
The IFC invested over $1.6bn in Central Asia during the past fiscal year, with the largest portfolio in Uzbekistan.
This includes $49mn for the Zarafshan Wind Farm in the Navoi region and nearly $1bn for a modern thermal power plant in the Syrdarya region. The country's projects aim to meet growing energy demand while supporting decarbonization and energy transition efforts.
Reportedly, the Kyrgyz Republic is leading the way in terms of private sector development, with a high level of participation from the private sector. According to Cheikhrouhou, the economy has shifted from agriculture to services over the past two decades, while the industrial output has remained steady.
Kazakhstan, on the other hand, has a lot of room for improvement when it comes to private sector participation, with state-owned enterprises accounting for 40% of the GDP. However, the country is working on a privatization program to reduce this figure to 15%, which aligns with OECD countries.
Tajikistan and Uzbekistan have also made progress, but there is still much work to be done to enhance competitiveness, attract new investments and technologies, and create more sustainable jobs.
IFC is working towards expanding its business in the region, focusing on the COVID-19 crisis response and creating private sector investment opportunities. One of the major challenges faced by enterprises, especially women-owned businesses, is access to financing. Cheikhrouhou noted that the IFC has invested $115mn this fiscal year to assist local banks in Central Asia, including a $20mn loan to KMF, a leading microfinance organization in Kazakhstan. At least half of the funds are earmarked for women-owned businesses, which is a positive step toward promoting gender equality and inclusivity in the private sector.
Kazakhstan is taking bold measures toward economic diversification, according to President Kassym-Jomart Tokayev's state-of-the-nation address on September 1. The World Bank's latest update projects economic growth of 3.5% in 2023 and 4% in 2024, with support from the hydrocarbons sector.
Despite the sanctions against Russia and its concentration in mining industries, Kazakhstan's foreign direct investment inflows grew by 11% to over $25bn in 2022. The country has achieved the largest overall gas flare reduction of all countries between 2012 and 2021, thanks to strictly enforced regulations and a domestic gas market that incentivizes associated gas recovery.
Kazakhstan still faces challenges such as creating a level playing field, reforming state-owned enterprises, and making public institutions more efficient. Boosting the agricultural sector, which could increase regional food security and create jobs, is a game changer for Kazakhstan.
At least 75% of Kazakhstan's land is suitable for agricultural production, but only 30% is used.
Infrastructure and development projects along the Middle Corridor, such as the Trans-Caspian International Transport Route, have attracted increasing attention. The route plays a crucial role in strengthening Kazakhstan's transit potential. Significant infrastructure development, logistical and regulatory reforms, and intensified regional cooperation are needed to unleash its full potential.
Central Asia has abundant energy-related natural resources, opening up huge prospects for renewable energy development. The region is strategically located to become an energy trade hub between South Asia and Europe.
Women's entrepreneurship and economic empowerment are critical to inclusive economic growth. Women in Kazakhstan run 43.5% of small and medium-sized businesses, providing jobs to just over one million people. If women across Central Asia were to participate in equal measure to men, national income would be anywhere from 27% higher in Kazakhstan to 63% higher in Tajikistan.
Kazakhstan's decision in 2021 to lift restrictions on so-called "banned professions" where women were previously not permitted to work is a positive step, but legal reform alone is not enough to dismantle deeply rooted social norms and misconceptions. A concerted effort to unite employers, workers, governments, and society at large is necessary.
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