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Institutions, Interconnectedness, and Inclusiveness: Three “I”s for better lives in Eurasia

24 November 2014
by Guest author
Photo courtesy of H.E. Ms. Ingrid BROCKOVA , Permanent Representative of the Slovak Republic to the OECD

Photo courtesy of H.E. Ms. Ingrid BROCKOVA , Permanent Representative of the Slovak Republic to the OECD

Today’s post is by Marcos Bonturi, Director of the OECD Global Relations Secretariat

The world has had its eyes riveted on the tensions in Ukraine. The rest of the Eurasia region in particular is facing important economic and political challenges as a result of these tensions.

The region, at a crossroads between Russia, China, India and Europe, has had some success in the past couple of decades in transitioning from a planned to a market economy. Countries have enacted sweeping reforms to diversify their economies, improve the business climate and attract foreign direct investment. As a result, from 1995 to 2013, regional gross output more than doubled from USD 144 billion to almost USD 360 billion[1]. International investors have flocked to the region – between 1997 and 2013, net inflows of foreign direct investment increased more than six-fold, at an annual average rate of 12.4%[2]. During the financial crisis the region managed to maintain a strong GDP growth rate, which in 2013 was as high as 4.5%[3]. This upward growth trend has brought the majority of Eurasia countries into the middle income country bracket[4] and lifted about 32 million people out of poverty over the past decade[5] . Growth has been buttressed in many countries by access to vast natural resources – the Eurasia region holds mineral supplies of gold and bauxite, more than 125 years of gas reserves[6], 35 years of oil reserves[7] and 10% of the world’s agricultural land[8].

Yet international experience has shown that strong economic growth and generous resource endowments alone are not enough to guarantee social peace and prosperity, especially in a region as diverse as Eurasia. Since the collapse of the Soviet Union, the economic development of the region has been underpinned by rising commodity prices which have attracted investment in resource-rich countries such as Azerbaijan, Kazakhstan, Mongolia, Turkmenistan and Uzbekistan. This trend has made economies of the region highly susceptible to fluctuations in commodity prices and increased their dependence on the export of natural resources. It has also led to disparities in income per capita between resource-rich countries and resource-poor countries. While some resource-poor countries such as Armenia, Belarus, Georgia, Moldova and Ukraine have acquired middle-income status thanks to the industrial legacy of the ex-Soviet Union, others such as Afghanistan, Kyrgyzstan and Tajikistan are unable to exit the lower income brackets despite growing trade with their resource-rich neighbours.

To unlock sustainable peace and prosperity in the region, countries will need to widen their approach to economic reform and tackle three underlying obstacles to their development: institutions, interconnectedness and inclusiveness.

First, Eurasian countries need to strengthen their institutions and improve governance, both in the public and private sectors. Burdensome administrative processes, insufficient transparency and broad-based corruption – especially in the resource-rich economies –undermine public trust in institutions and stifle economic growth across the region. While for the low-income countries, building basic institutions and helping firms access financing is the most urgent priority, the middle-income economies of the region need to improve their regulatory frameworks to cut red tape and increase efficiencies. Innovation policies that heighten productivity will help the resource-rich countries diversify their economies and build a less commodity-dependent growth model.

Second, countries of the region need to boost their interconnectedness to regional and global markets.

Strengthening trade links, keeping markets open, investing in infrastructure, and integrating into global value chains are priorities across the region. For the resource-poor countries, this is especially critical as stronger linkages to global value chains will bring access to new markets, technologies and know-how, and drive job creation at home. Greater connectedness will also help the resource-rich countries diversify their economies and attract investment to the non-extractive sectors. Establishing mutually beneficial trade linkages with regional “heavyweights” can also help solidify relationships with powerful neighbours.

Third, governments must take action to ensure that rising national wealth is not highly concentrated in the hands of few, but is shared more equitably among all citizens. With inequalities and youth unemployment on the rise across the region, a first step to foster inclusive growth will be to reform Eurasia’s education and training systems, which often date from the Soviet era. Governments will also need to encourage a more transparent and open dialogue between the public and private sectors and reduce barriers to small- and medium-sized enterprise development, drivers of job creation and innovation.

The OECD stands ready to support countries in Eurasia to design and implement reforms that will enhance their transparency, inclusiveness and integration in the global economy, and ultimately pave the way for a peaceful and prosperous future for all of the region’s citizens.

The OECD’s Eurasia Competitiveness Programme was established in 2008 to help the Eurasia region overcome these transition challenges, develop more vibrant and competitive markets, and uncover its vast potential. High-level representatives from Eurasia and OECD countries will meet at OECD Headquarters in Paris from 24-27 November 2014 for the first Eurasia Week, to exchange perspectives on “Enhancing Competitiveness in Eurasia”, assess progress made, and agree on a roadmap for the region’s future reforms.


[1] OECD calculations based on World Bank data, 2014

[2] OECD calculations based on World Bank data, 2014

[3] OECD calculations based on World Bank data, 2014

[4] For the current 2015 fiscal year, middle-income economies are those with a GNI per capita of more than $1,045 but less than $12,746 (World Bank).

[5] OECD Calculations based on World Bank (2014) “Diversified Development: Making the most of natural resources in Eurasia”, Washington D.C. and World Bank World Development database.

[6] BP Statistical Review of World Energy 2014

[7] BP Statistical Review of World Energy 2014

[8] OECD calculations based on World Bank data, 2014

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