Eurasia: The Silk Road to Competitiveness

Leveraging their comparative advantage
Leveraging their comparative advantage

Today’s post is by Antonio Somma and Vanessa Vallée of the OECD Global Relations Secretariat’s Private Sector Development Division

Seen from a sweltering hotel lobby surrounded by palm trees, the view could be considered somewhat surprising. Turquoise beach? Sand covered surfers? No, try a snow swept tundra and ultra modern skyscrapers plated with 10-story TV screens. We’re in Astana, Kazakhstan and it’s February. Welcome to today’s Eurasia, land of contrasts.

Twenty-five years ago the story was different.  Most of the thirteen economies of Eurasia taking part in the OECD Eurasia Competitiveness Programme shared the same Soviet institutions which kept a lid on economic, political and social differences. Today the lid is off and divergences between countries are growing as they race to find a place in the global economy. Take the income gap:  In 1990, average GDP per capita for the region was $4670 USD with the richest country four times better off than the poorest. By 2010, the gap had widened to almost seven times (if Afghanistan is excluded) between the region’s growth leader, Belarus, and Tajikistan.

Some had an initial advantage, with countries like Kazakhstan, Azerbaijan, Uzbekistan and Turkmenistan possessing significant oil/gas and mineral reserves that are profitably feeding a voracious world market. However, the resource blessing could turn into a curse and compromise long-term prosperity if countries do not diversify and find new sources of growth.

Other Eurasia countries have had to find alternate paths to economic development.  Economies like Ukraine and Belarus have leveraged existing capabilities inherited from Soviet times such as a strong industrial base and a scientific tradition to become significant players in chemicals, aviation, machinery and IT programming.  Georgia has been named one of the world’s top business climate reformers after jumping from 112th to 9th place in only eight years (2005-2013) and after major achievements in e-government is now leading on the use of smart phone apps for m-government. Yet despite its strong performance on reform, Georgia’s GDP per capita trails the regional average by almost forty percent. And many of the region’s entrepreneurs are still struggling to attract needed investment and financing.

Differences notwithstanding, the countries from the region share a host of common comparative advantages:  almost universal literacy rates, proximity to major markets such as China, the EU, Turkey and Russia, and a willingness to accept new ways of living and working thanks to centuries of ethnic diversity. Today’s diverse Eurasia is poised to become a new frontier for economic opportunity but the challenge remains of how to tap all of its countries’ potential.

Eurasian governments have requested the OECD’s support in analysing their economies and proposing concrete solutions to help them diversify, increase productivity, and link up to global value chains. This is all the more relevant today as Russia – a major trading partner for the region – is in talks with the OECD about accession. It is in the interest of all to bring economies of the region up to global standards in areas like business conduct, taxation, investment and government regulation.

At the end of this month, leaders from Eurasia will launch a new initiative to collectively track progress on competitiveness reform in the region. While experience shows that applying OECD recommendations can help to establish confidence in an economy, this is no guarantee of success. However, the fact that these countries are planning to implement the peer review process shows they are aware that there is a lot to learn from each other. This is perhaps the key for Eurasia to find its own unique path to growth and prosperity.

Useful links

The OECD Eurasia Competitiveness Programme 2013 Ministerial Conference “Implementing Policies for Competitiveness in the Eurasia Region”, will take place in Warsaw on 27-28 June co-hosted by the government of Poland and the OECD.  Follow it on Twitter and via #eurasia2013.

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