Wef Baku13 Report

7/30/2019 Wef Baku13 Report

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Regional Agenda

World Economic Forum

Strategic Dialogue on the

Future o the South Caucasusand Central AsiaAt the Confluence o ChangeBaku, Azerbaijan 7-8 April 2013


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World Economic Forum

2013 - All rights reserved.

No part o this publication may be reproduced or transmitted

in any orm or by any means,

including photocopying and recording, or by any inormationstorage and retrieval system.

The views expressed are those o certain participants in the

discussion and do not necessarily reect the views o all

participants or o the World Economic Forum.

REF 110413


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3World Economic Forum Strategic Dialogue on the Future of the South Caucasus and Central Asia

Contents PreaceCooperation and Integration are Keys to RegionalProsperity and Sustainable Growth

3 Preace

4 News rom Baku

6 Energy and Natural ResourcesReleasing the Regions UntappedPotential

10 Entrepreneurship and HumanCapitalNurturing the RegionsHuman Energy

14 Finance and Long-term InvestingEnsuring the Means or DiversifedGrowth

18 Trade and Supply Chains

Opening Borders and Minds

21 Acknowledgements

24 Further Inormation

25 Upcoming Meetings

Brge BrendeManaging Directorand Member o theManaging Board

Anastassia AubakirovaDirectorHead o Russia and CIS

The countries o the South Caucasus and Central Asia have madesignifcant strides since they emerged rom the disintegration o theSoviet Union in the early 1990s. Energy-rich Azerbaijan, Kazakhstanand Turkmenistan have registered double-digit growth rates and used

the proceeds to invest in physical inrastructure. Others, like Tajikistanand the Kyrgyz Republic, have also made progress in developing marketeconomies and state institutions.

Twenty years into the transition, much has been achieved in aregion rich in natural resources and human capital. But can even itswealthier countries proceed at the same pace without more regionalcooperation? And could their less well-endowed neighbours makeaster progress through greater integration? Finding answers to thesequestions is the subject o an intensive 18-month process o dialoguelaunched by the World Economic Forum Strategic Dialogue on theFuture o the South Caucasus and Central Asia in Baku, Azerbaijan, on7-8 April 2013.

The European Union and, more recently, the Association o South-East

Asian Nations (ASEAN) are among the best known examples o eortsto realize economic, social and political gains by uniting complementarystrengths among neighbouring countries in a spirit o trust and long-term cooperation.

There is, however, no blueprint or regional integration. I the SouthCaucasus and Central Asia are to make progress down the path oregional cooperation, thorough reection and consensus building arerequired. The goal o the new Forum initiative Scenarios for the SouthCaucasus and Central Asia is to engage a broad range o regional andinternational stakeholders in a strategic reection on the prospects orregional integration.

I geography is destiny, then the South Caucasus and Central Asiaregions destiny is wide open. Located between East and West, North

and South, the region is at a critical juncture. Beyond Russias historicalpresence and Chinas deepening its ootprint in the area, South Asiaincreasingly looks to the region as its next rontier and Europe isshowing signs o renewed interest.

The regions nations are diverse. Some are energy-rich, others areendowed with valuable reshwater resources. Some struggle to providebasic necessities, others are growing at a rapid pace. Is there a case ortheir collaboration and, i so, in what orm and towards what goal? Witha view to the world o 2030, the Scenarios for the South Caucasus andCentral Asia oer a ramework or constructive and open discussionsto explore the social, economic, political and institutional driversunderpinning the regional economy.

The challenge is great. Countries in the region are proud o their

accomplishments and, ater only 20 years o independence, they are notinclined to cede their hard-won sovereignty. As yet unsolved territorialdisputes in the region pose an additional level o complexity. But whatdid emerge rom the Baku meeting is that the states do want to explorehow their patchwork o disparate states lying at the crossroads oEurope and Asia can enhance their prospects by working together.

To get started, the launch in Baku explored critical themes commonto all the countries in the region and, as such, oer building blocksor greater cooperation and integration. They are: energy and naturalresources, trade and supply chains, entrepreneurship and humancapital, and fnance and long-term investing.

Moving rom a shared sense that cooperation is intrinsically positiveto some kind o consensus on what its architecture may look like is a

complicated, necessarily drawn-out process. To get there, the initiativewill ocus on how dierent combinations o critical uncertainties willplay out between now and 2030. It is a process designed to challengeassumptions and pinpoint blind spots.


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4 World Economic Forum Strategic Dialogue on the Future of the South Caucasus and Central Asia

News rom

Baku


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Small Steps CanBring Big Gains

The ChangingNature oEducation

Shaping theRegions Future

No one questions the idea that people area countrys most valuable asset. This kindo blanket endorsement o human capitalmay sound good but it does little to ensurethat citizens are able to maximize theircontribution to a 21st century economy.This requires greater, more determinedeorts to match the skills that are needed inast evolving labour markets with the typeo education and training on oer.

This theme was aleitmotivat the Bakumeeting where, or example, a participant

rom one o the big international oilcompanies said his success depends onhiring young people with good training inmath and physics so his company canitsel add the expertise its workorce needsto manage the industrys increasinglysophisticated equipment.

Other participants called or a radicalrethink o the whole approach to educationin the region. The ocus needs to shitrom traditional curricula and rote learningto an education system that encouragesreethinking and problem solving. Asbusinesses become more knowledge-intensive, they need people who can applywhat they know in creative, collegial andpractical ways, and who understand thateducation is a lie-long process.

It is all about changing mentalities andproviding role models. It is only byincorporating these approaches romthe start o the educational process, andthen burnishing them through career-longvocational and executive training, that oursocieties will be able to provide worthwhileand value-adding opportunities to peoplewho will then truly be their countrys most

valuable assets.

An enduring legacy o the Soviet Union isbignessdreaming, acting and thinkingbig. Ater all, it was a big country. In theoil-rich states o the South Caucasus andCentral Asia a lot is still done on a grandscale: witness the extent o constructionin Baku and Astana and the length o theregions pipelines, not to mention the size oits sovereign wealth unds.

Big may still have its place, but theadvantages o starting out at the modestend o the spectrum should not be

overlooked. Change seems to be in theair and several participants at the Bakumeeting proclaimed the economic andsocial virtues o the diminutive as insmall and medium-sized enterprises,microfnance and one-on-one learning.These diverse approaches to commercialorganization, fnance and training haveone big thing in common: they recognizethe potential o small initiatives to producesignifcant gains.

The same trend seems to apply toplanning. It is time, some participants said,to shelve multi-year plans and universalagreements in avour o light-touchapproaches that can lead to undamentaltransormation. Participants urged opendialogue, empowerment o individuals,nimble processes and just getting on withthings, even i they turn out to be lessscalable than intended. The messageseems to be that a grassroots perspectiveis central to todays Big Sky thinking in theregion.

The Global Shapers Community is anetwork o city-based hubs developedand led by leaders between between 20and 30 years o age who want to developtheir leadership potential in serving society.Members o the hubs undertake grassrootsprojects to improve their communities.

On 6-7 April, SHAPE CIS, Central Asia andCaucasus: Vision 2020 brought togetherover 80 Global Shapers rom 16 hubsin 10 countries in the region. This frstmeeting o Shapers in the region explored

what they can contribute to the StrategicDialogue as young leaders o their localcommunities. Through interactive sessionswith the Forums Strategic ForesightTeam and invited young experts rom theregion, the Shapers discussed their visionor and the potential benefts o utureregional integration. They also shared 15local projects in which they are making asignifcant dierence and learned eectivePR and media tools or their projects withhelp rom external experts.

Twenty-fve Shapers also participated in theStrategic Dialogue on the Future o SouthCaucasus and the Central Asia, activelycontributing to discussions on issues suchas entrepreneurship and human capital,a principal ocus o development andinvestment in the region.

News rom Baku


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Releasing theRegions UntappedPotential

Energy and Natural Resources

While there are promising reserves omany dierent natural resources allacross the region, the ocus o thediscussion in Baku was on how supplieso oil and gas can meet growing demandin the context o untapped productionpotential and incomplete distributionnetworks within the region.

We need predictability and

stability in the region to

expand our economic and

political ties. This requires

strengthened regional

cooperation, in which each

country must determine its

own level o engagement.

Ilham AliyevPresident o Azerbaijan


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The region abounds in energy,minerals and valuable reshwaterresources. These are spreadunevenly across the arc o countriesrom the Black Sea, through theCaspian region to the steppes oCentral Asia and the mountainousstates o the Kyrgyz Republic and

Tajikistan. But it is the regions vastreserves o hydrocarbons that havepropelled growth rates in the energy-rich states o Azerbaijan, Kazakhstan,Turkmenistan and, to a lesser degree,Uzbekistan.

The scale o the regions energyreserves is vast. The Caspian regionalone accounts or 3.5% o global oilreserves and 7.5% o gas reserves,recently boosted by Turkmenistans

discovery o the worlds largest gasfeld. Production has recoveredrom the decade-long decline thatollowed independence. Azerbaijan,or example, has quintupled oilproduction while its gas productionhas increased ourold since 2000.Other producers in the region

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have ollowed a similar pattern oproduction growth.

As production has increased, sohas the construction o pipelinesto export burgeoning supplieso hydrocarbons rom what is alandlocked region that, until recently,

was dependent on Russias pipelinenetwork to reach export markets.Azerbaijan was the frst to try andbreak Gazproms stranglehold onits exports. In doing so, the countryaced tough choices: whether toexport through the Persian Gul,which already accounts or two-thirds o world reserves, or to strikeout across the Caucasus along theAzerbaijan-Georgia-Turkey corridor.They chose the latter and today, with

the ocus still very much on supplysecurity or Europe, Azerbaijan nowhas three oil pipelines and our gaspipelines linking it to markets to theWest. Several more projects are inadvanced planning stages.

01: Natiq Aliyev, Ministero Industry and Energy o

Azerbaijan02: Matthew J. Bryza,Senior Fellow, DinuPatriciu Eurasia Center,

Atlantic Council o theUnited States, USA

01

02

No country in the region can

achieve its ull potential

alone. Our goal is to think

creatively about theprospects or regional

integration.

Klaus Schwab Founder and ExecutiveChairman, World Economic Forum

01

04

02

We live in the most vibrant

region o the world, with

three BRIC countries that

will be locomotives o

development.

Djoomart Otorbaev First Deputy Prime Ministero the Kyrgyz Republic


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How much sovereignty is a

nation willing to transer or

its economic and political

uture?

Victor Halberstadt Proessor o Economics,Leiden University, Netherlands; Global AgendaCouncil on Fiscal Sustainability

While there was positive commentat the meeting on Azerbaijansdetermination to open new exportroutes to Europe, concerns wereraised about slow progress onthe proposed pipeline across theCaspian to transport Turkmenistansgas to European markets.

Participants speculated onTurkmenistans reticence that theyascribed to concerns that Russia(and perhaps China?) might takeretaliatory action or ear that a trans-Caspian pipeline, by diversiyingmarket opportunities, might aecttheir interests. There was consensus,however, that once a southerncorridor is fnally decided on bythe Europeans and transit states,Turkmenistan is likely to agree to the

trans-Caspian pipeline.Energy is likely to be the biggestregional driver o growth or theoreseeable uture, but participantswarned that the regions energyresources are unlikely to last orever.

01

02

This begs the question as to howto maximize the value o resourceswhile they last and how to preparethe ground or the time when theyare used up. One area or possiblediversifcation in Azerbaijan is petro-chemicals. This was a strong sectorin the past but collapsed along with

the Soviet Union. Now there areplans to revive it with the state energycompany SOCAR investing heavily inthe country as well as in Georgia andTurkey.

Other participants encouragedthe energy-producing states tothink beyond hydrocarbons in thesame way that some o the moreprogressive oil majors are ocusingincreasing attention on renewable

energies as part o their long-termproduct planning. In the meantime,energy producers should ocus onthe impact o their current activitieson climate change. This means usingthe best available technologies toreduce their global environmental

ootprint that could launch a virtuouscycle taking them down the roadtowards sustainability.

One ambitious idea suggested byparticipants is that the Caspianregion becomes a hub or renewableenergies with the authorities playinga leadership role in encouragingthe adoption o new energytechnologies by the private sectoras well as public enterprises. Otherssaid that by pioneering regionalenvironmental standards, the regioncould gain frst-mover advantages

and establish a role or itsel at theglobal level. Sovereign wealth unds,like Azerbaijans State Oil Fund, canprovide a fnancial buer to driveshort-term thinking and practicetowards a longer-term perspective.

02

01: Elshad Nasirov,Vice-President, SOCAR(State Oil Company othe Azerbaijan Republic),

Azerbaijan


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eectively want to be carried byoutside investors, wielding inuencethat goes beyond their contribution.

Working through these kindso issues requires an open andhonest dialogue so that businessunderstands governments thinking

and governments know wherebusiness is coming rom. In additionto trustworthy relations withgovernments, business wants to seepublic investment in social servicesso their sta can enjoy good healthand get a decent education. Onespeaker underlined the importanceo ensuring young people have goodbasic skills in math and physics.Energy companies can then trainthem to the next level, enabling

them to manage some o the mostsophisticated equipment in theindustry.

Several speakers rom Azerbaijanunderlined the human and economiccost o their countrys continuedstand-o with Armenia overNagorno-Karabakh that accounts or

20% o their national territory. Otherspointed to the security implications othe breakaway republics o Abhaziaand South Ossetia in Georgia.There were also ears voicedrelating to possible cyberattackson the oil industry and unspecifedterrorist activity. However, business

representatives elt that there waslittle likelihood o the region stumblinginto war or o security becominga limiting actor or their businessactivities.

Participants emphasized thatkey to the success o the energyindustry in the region are politicaland commercial stability. Withan increase o 1% in global oilproduction requiring US$ 200 billionin investments, it is essential toensure a business environment in

which investors eel their contractswill not be changed in mid-course.Leaders o some o the major globaloil companies operating in theCaspian paid tribute to Azerbaijanssteadast respect or the terms o theproduction sharing agreements (PSA)it has signed over the past 18 years.Not a single PSA has been changedor questioned.

This points to a broader question

o governance. Energy investorsdo not necessarily want to own51% o their operations. What theydo need, however, is governancearrangements that match theirfnancial contribution, participantssaid. Problems arise not whenregional governments insist ona majority stake but when they

01: Natiq Aliyev, Ministero Industry and Energy o

Azerbaijan02: Edward Chow,Senior Fellow, Energyand National SecurityProgram, Center orStrategic and InternationalStudies (CSIS), USA;Global Agenda Councilon Ukraine (crop on right-hand side the participantwho is sleeping)

01 02


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Nurturing theRegions HumanEnergy

Entrepreneurship and Human Capital

Making the transition rom centralplanning to a market economy is onething. Completing the process by shitingthe ocus rom ownership o ormerlystate-owned assets to creating the kindo sel-starting drive that defnes theentrepreneurial spirit presents a wholenew order o challenges.

Entrepreneurship is the

energy o the uture or this

region.

H.R.H. The Duke o York


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01


01: (Let to right) Rice Leland, Managing Editor,The Business Year, United Kingdom; PetarIvanovic, Minister o Agriculture and Rural

Development o Montenegro; Sivinj Hasanova,Deputy Minister o Economic Developmento Azerbaijan; Ali Abbasov, Minister oCommunication and Inormation Technologieso Azerbaijan; Elmir Valizada, Deputy Minister oCommunication and Inormation Technologies o

Azerbaijan (last person on the right no name)02: Esther Dyson, Chairman, EDventure Holdings,USA; Global Agenda Council on FosteringEntrepreneurship

01

02

Smart government is about

acilitating and supporting

business, and not

interering.

Sevinj Hasanova Deputy Minister o EconomicDevelopment o Azerbaijan

But what does it take and how canthe necessary skills be instilled andpromoted?

Just as the privatization o state-owned industries and property hadto contend with the complex legacyo the Soviet Union, cutting anentrepreneurial culture rom the same

educational and institutional cloth isa demanding process that places theonus on governments, educators,businesses and, o course, on thewould-be entrepreneurs themselves.

The premise is that vibrant smalland innovative businesses will notonly provide people with jobs butalso a jolt to a system in which themajority o people in work are stillemployed by large enterprises, manyo them privatized versions o Sovietera enterprises. The goal is to beginto narrow the gap in a country like

In the South Caucasus andCentral Asia region developingentrepreneurial skills is consideredas important in the our countriesendowed with energy resourcesas it is in the our that are not. Theormer want the skills to diversiy theireconomies away rom dependenceon oil and gas beore production

or demand peak. The latter seethe promotion o 21st centuryentrepreneurial reexes as a way tojumpstart their economic ortunes.

Lie or many people in the SouthCaucasus and Central Asia is unairand unequal. These inequalitiesare accentuated by the capriciousdistribution o natural resourcesacross the region. In thesecircumstances, creating a cadre oentrepreneurs is a cut-through wayor people who have what it takesto take charge o their own destiny.


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thinking, model companies play animportant role in changing peoplesmentality and convincing them thatan entrepreneur plays a valuable rolein society.

Participants identifed our mainpriorities:

The frst is access totelecommunication and broadbandInternet services that can speed upthe pace o bureaucracy and ensuregreater transparency in the marketplace. As shown in the ForumsGlobal Inormation TechnologyReport 2012 (GITR), universal accessto mobile phones will allow people toparticipate in real time in economiesthat move more quickly than in the

past.

Success on telecommunicationsrequires a multistakeholder eortbetween public and private partners,with governments creating avourablemarket conditions and providinginvestment and inrastructure while

Azerbaijan, where it was reportedthat only 30% o people work inSMEs compared to the OECDaverage o 60%.

The prevailing myth is that youcan make this happen topdown, with innovation spawning

entrepreneurship rom which thenecessary human capital thenemerges. In act, it is exactly thereverse. Without the right humancapital, trained and comortable tothink analytically and take risks, theentrepreneurial transition just wonthappen. Another necessary conditionis a unctioning market without whichnewly minted entrepreneurs will fnd ithard to practice their new skills.

Learning by doing is a great wayto ast orward the process. Rolemodels o small, proven andsuccessul companies are also vitalin providing examples that buddingentrepreneurs can ollow. Likethe right kind o education, whichinstils the relevant skills and ways o

01: Fadi Farra, Adviserto the Prime Minister

o Kazakhstan; GlobalAgenda Council onAdvanced Manuacturing02: Tatyana Mikayilova,General Director, RedCommunications PR &BTL Agency, Azerbaijan

01 02 02

Capital input should be an

investment, not a git. Whats

needed are experienced

proessionals willing toinvest not only their money

but also their time and

expertise.

Esther Dyson Chairman, EDventure Holdings,USA; Chair, Global Agenda Council on FosteringEntrepreneurship


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leaving the private sector to providelocal services, including inbusinesstraining.

The second priority is educationand on-the-job experience. It is apriority because human capital isthe biggest, most important element

in business success. It meansupgrading the education system,starting with digitizing learning inkindergartens, and generally growingpeoples entrepreneurial potential asearly as possible. University is waytoo late. A good place to start isteaching teachers new technologiesand languages, and introducing morevocational training.

Government has investment het

that must be deployed and theprivate sector can itsel contribute todeveloping the skills they will needin the uture. NGOs can move thingsalong by acilitating dialogue betweengovernment and business.

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A good start would be pilot projectswith structured learning romsuccessul cases. It is fne to startsmall and scale up i things work outwell. Crucial to success is dialogue,sharing best practices and organizedexchanges or both studentsand teachers. And, o course,

schoolbooks need to be adapted or,better still, rewritten.

The third priority is access to smartmoney. Without sufcient capitalentrepreneurs cannot even beginthe process. This means moremicrofnance, private equity andperhaps the use o sovereign wealthunds to underwrite entrepreneurialstart-ups. But smart moneyalso requires deregulation, more

stringent anti-corruption measuresand encouraging governments tobuy smart rom small enterprises,giving the latter a chance to provethemselves in the feld o governmentprocurement.

01: H.R.H. The Duke oYork, Fadi Farra, Adviserto the Prime Ministero Kazakhstan; Global

Agenda; Council onAdvanced Manuacturing;Evgeni Utkin, Chairmanand Chie ExecutiveOfcer, KM Core, Ukraine;Global Agenda Council onUkraine02:Ali Abbasov, Ministero Communication andInormation Technologieso Azerbaijan03: Hongbo Chen, Adviser,

Tsinghua University,Peoples Republic oChina; Global AgendaCouncil on FosteringEntrepreneurship04: Petar Ivanovic,Minister o Agricultureand Rural Development oMontenegro

01

03 04

02


The ourth priority is to createconsumer-driven, bottom-upmarkets. This implies creatingcompetition at every level othe value chain, ensuring aavourable business environmentand minimizing governmentintererence. It also requires

construction o the physicalinrastructure that allowsentrepreneurs to build theirbusinesses as well as avourabletax treatment, appropriatebusiness standards and thenecessary training, fnance andeducation. These building blocksare especially important in marketsthat are relatively small.


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Ensuring the Meansor DiversifedGrowth

Finance and Long-term Investing

Countries across the region share asense o urgency about the need toattract the right kind o unding rom theright mix o investors to underwrite thediversifcation and development o theireconomies as they anticipate aninevitable slowing o their energy-drivengrowth rates. But how to ensure this kindo diversifed economic growth, wherewill the money come rom, and what arethe respective roles o government andthe private sector in making it happen?

Azerbaijan has never

changed so much as a

comma in our production

supply agreements thats

the kind o stability investors

need.

Gordon Birrell Regional President, Azerbaijan,Georgia and Turkey, BP, Azerbaijan


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Finance and Long-term Investing

with private ows still modest incomparison with public investments.

One reason - the lack o competitionin the regions banking sectorsmeans that they have a lacklustrerecord in seeking out investmentopportunities. Their weakly

capitalized banks have not beeneective in channeling savings intoprivate investment opportunities.Private capital and equity markets,meanwhile, remain poorly developedand under-regulated.

The lack o private domestic capitalis a problem because economicdiversifcation is one o the principalchallenges and goals in the region.Although governments could channel

state resources top-down into neweconomic activities, they are notgood at investing money based onrates o return and creating valueor shareholders. Smarter money isneeded and this must come romventure capital, private equity andbusinesses themselves.

International capital has not flled thegap let by lack o private domesticfnance. This is part o a broaderslowdown in international investmentbut it is exacerbated by concernsabout corruption and the rule o lawthat undermine the business climatein several parts o the region.

As capital rom both traditionaland non-traditional investors isincreasingly drawn to promisingopportunities elsewhere, slowprogress on political and institutionalreorm in the region is a disincentiveto oreign investors. This mattersbecause the kind o long-termcommitment the countries need ishard to nurture when people arenervous about what they see as

relatively ragile institutions matchedby social tensions that risk aring upand undermining their investments.

Short-term, the answer seems tobe more emphasis on the kind opublic private partnerships (PPPs)that have worked elsewhere. This is

These challenges are not unique tothe South Caucasus and CentralAsia region. Countries as diverse asChina, Singapore and the Gul statesare also ocused on how to promotenew vectors o growth and harnessinvestments that promote balanced,sustainable growth into the uture.

Participants rom the region agreedon the imperative o channelinginvestments into non-resourcesectors and generally balancing theireconomic profles that are heavilyskewed toward the energy sector.The trick will be to ensure theymaximize continuing opportunities inthe energy sector while stimulatingactivity in other areas o theeconomy.

Getting this right means fnding abetter balance between public andprivate fnance. So ar governmentshave played a disproportionate rolein the economy. They need to stepto one side and encourage privateinvestors to get more involved. Thishas met with only limited success,

01: Amer Zaar Durrani,Senior Partnership

Specialist, World Bank,Almaty and S. FrederickStarr, Chairman, Central

Asia-Caucasus Institute,Johns Hopkins University,USA02: Samir Shariov,Minister o Finance o

Azerbaijan03: Shahmar Movsumov,Executive Director, StateOil Fund o the Republico Azerbaijan, Azerbaijanand Kevin Lu, RegionalDirector, Asia-PacifcMIGA, World Bank Group,Singapore; Young GlobalLeader; Global AgendaCouncil on China

01

0302


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Another lesson rom experience inother parts o the world is that sizeo market is one o the main driverso oreign direct investment. Chinasbusiness climate, or example, isranked poorly by several surveysbut the size o its market is suchthat oreign investors stay put. This

fnding has implications or greaterintegration o markets in the SouthCaucasus and Central Asia regionthat is made up o eight states witha combined population o just 60million.

Going orward, governments in theregion must ocus greater attentionon creating an environment thatattracts capital and leaves the privatesector to play its role, either with

governments or alone. This meansproviding good inrastructure, aregulatory ramework that is seen asair, and greater levels o investmentin education, including executiveand vocational training. In turn, theprivate sector, including the small-

and medium-sized businesses thatare now lacking, must be giventhe chance to prove its capacityto deliver not just high qualitygoods and services but to modelentrepreneurial behaviours.

a stopgap measure and longer-term,governments must give the privatesector the space it needs to playits role eectively in the context oan investment climate enhanced byclearer rules and more transparentpractices.

Some participants suggested thatsovereign wealth unds might playa bigger role in fnancing economicdiversifcation. This would meanincluding long-term domesticinvestments in their portolios inaddition to unding emergenciesand the sae rainy day investmentsthey make in oreign assets. Butother participants eared that thisextension o their mandates mightbecome the thin end o the wedge,

with their independence and staturecompromised by governmentintererence. They did not exclude,however, that wealth unds mighteventually und cross-borderinrastructure projects as a spur toregional cooperation.

01: Israfl Mammadov,Managing Director, State

Oil Fund o the Republic oAzerbaijan (SOFAZ)02: (let to right) Yan E.

Yanovskiy, Founder andManaging Partner, FirstNation Socit Bancaire,Russian Federation; IgorI. Yakovenko, Chairman,

Azerbaijan Electronics(AZEL), Azerbaijan;Zhanna Zenina, ManagingDirector, Optima Advisory,United Kingdom03: Ruat Aslanli,Chairman, StateSecurities Commission o

Azerbaijan

01 02

03


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Opening Bordersand Minds

Trade and Supply Chains

Opening up commerce within and acrossthe region through better trade andtransport systems oers the promise not

just o broader-based prosperity in aregion where the energy industry dwarsother sectors but the opening o mindsas people and their goods criss-crossthe region.

This region is a kind o land

Suez.

S. Frederick Starr Chairman, Central Asia-Caucasus Institute, Johns Hopkins University,USA


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Ater decades o isolation on thesouthern periphery o the SovietUnion, the South Caucasus andCentral Asia region is once againon the international map as bothdestination and crossroads.

Better transport and trade will bring

local benefts as people build ontheir comparative advantages andincrease the return on their labour. Itwill also help grow transcontinentaltrade as goods are sent along theland routes that are gateways toother regions. Such is the geographiccentrality o the region that it couldbecome the transit corridor o choiceor manuacturers in Hanoi tradingwith buyers in Hamburg, or peoplein Macheng, China, selling their

goods to retailers in Madras, India, orMadrid, Spain.

The region played this kind o role inthe global trade and transport systemor centuries. A thousand years ago,the silver dirham minted in Azerbaijanwas in demand rom Sweden to

06

Sri Lanka as a means o exchangeand store o value. The Soviet Unionended the regions role as a waystation between East and West. Itis only since independence in theearly 1990s that the countries in theregion have begun to emerge romtheir isolation. Over the last 20 years,

more than US$ 40 billion has beenspent on new railway lines, pipelinesand ports within the region and inneighbouring countries rom India toTurkey.

Security remains an obstacle insome places but is not considereda major hindrance. Nonetheless,progress has been mixed. Somecountries have made strides in bothimproving roads and railways and in

the telecommunications systems thatare so essential to commerce. Othersare not spending enough to createa seamless logistical chain acrossthe region. The result is that thetransport and telecommunicationsinrastructure is uneven.

01: Jay Cziraky, Membero the Board, Move OneInc., United Arad Emirates02: Davit Narmania,Minister o RegionalDevelopment andInrastructure o Georgia03: Alan McKinnon,Proessor and Head oLogistics, Khne LogisticsUniversity, Germany;Global Agenda Council onLogistics & Supply Chain

Systems

02

03 04

02

Sot barriers hold back

development in trade and

supply chains. Removingthese has greater impact on

GDP than removing all o the

taris.

Christopher Logan Co-Founder and ChieExecutive Ofcer, Silk Road Mining andDevelopment, Canada; Young Global Leaders;Global Agenda Council on Global Trade andFDI

Trade and Supply Chains

01


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Consistent levels o investmentin inrastructure are necessary.So is more harmonization oregulations and dispute settlementarrangements. Progress on thisis as important or people tradingin the region as those accessingmarkets as ar afeld as the EU and

China. It would also help to changesome o the negative perceptionsthat continue to dog the regionsimage; perceptions that no amounto advertising international televisioncan allay on its own.

Put the right incentives in placeand the private sector will respond,many participants suggested. Buta market response is only possible,

they said, i issues are addressed likeexcessive bureaucracy, corruptionamong customs ofcers and manyother hassle actors that underminethe ree ow o goods across nationalborders. So much time is currentlywasted at borders that many

01

02

potential traders simply give up andabandon their role as trans-borderwealth creators.

Yet addressing these so-calledsot issues is much simpler thanremoving tari barriers. As highlightedin this years World Economic Forum

report Building Resilience in SupplyChains, addressing the soter sideo trade acilitation is about buildingthe capacity o border administratorsand sharing intelligence among theregions customs services to makecustoms procedures less obstructive.

More contact between customsservices and business people wouldalso help them to understand eachother better. There are some easy

wins that should be acted on rightaway. They include cutting backon red tape and opportunities orrent seeking through digitization,harmonization o procedures withinand across countries to speedprocessing and greater cooperationbetween government and business

to enhance the overall businessenvironment and reduce corruption.

These things hold back trade.Removing such obstacles will havea greater and more immediateimpact than ocusing on taris.The necessary levers are in the

hands o individual governments. Itwould be better i they coordinatedchanges with their neighbours, butacting alone would itsel make a bigdierence.

The Caucasus, the Caspian and theBlack Sea regions are all intertwined.The greater the connectednessbetween them, the greater will betheir prosperity. Several participantsurged the countries o the region

to take action now by exchangingideas, piloting new ideas andtaking risks. Business leaders havean important role in encouraginggovernments to move the trade andtransport agenda orward. I MarcoPolo were alive today, he wouldencounter more obstacles in crossingthe region than he did in the 13thcentury, said one participant. It istime to move the hands o the clockorward.

02

01: Jake Frazer, ChieOperating Ofcer,

Theodor Wille Intertrade,Switzerland and AndrewC. Kuchins, Director andSenior Fellow, Russiaand Eurasia Programme,Center or Strategic andInternational Studies(CSIS), USA02: Amer Zaar Durrani,Senior PartnershipSpecialist, World Bank,

Almaty and S. FrederickStarr, Chairman, Central

Asia-Caucasus Institute,

Johns Hopkins University,USA


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The World Economic Forum wishes to thank SOCAR for its support of the Strategic Dialogue on the Future of the South

Caucasus and Central Asia.

SOCAR (State Oil Company o the Azerbaijan Republic) isa government-owned entity responsible or all aspects oexploration and development related to oil and gas felds,both onshore and oshore, or the Republic o Azerbaijan.One o the largest companies in the world, it employs morethan 70,000 people.

Acknowledgements


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01: Edward Chow,Senior Fellow, Energyand National SecurityProgram, Center orStrategic and InternationalStudies (CSIS), USA;Global Agenda Council onUkraine02: Samir Shariov, Ministero Finance o Azerbaijan,and Hannes ShariputraChopra, Managing Partner,CKW-Consult, Russian

Federation03: Ilham Aliyev, Presidento Azerbaijan and KlausSchwab, Founder andExecutive Chairman, WorldEconomic Forum04: Fadi Farra, Adviserto the Prime Ministero Kazakhstan; Global

Agenda Council onAdvanced Manuacturingand Anar V. Aligulov,Executive Director, R.I.S.K.Scientifc-IndustrialCompany, Azerbaijan

02

01

03 04


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01: (let to right)Djoomart Otorbaev, First DeputyPrime Minister o the KyrgyzRepublic; Bakytzhan Sagintayev,First Deputy Prime Ministero Kazakhstan; Ilham Aliyev,President o Azerbaijan; KlausSchwab, Founder and ExecutiveChairman, World EconomicForum; Andrey L. Kostin,Chairman and Chie ExecutiveOfcer, VTB Bank, RussianFederation; Taner Yildiz, Minister

o Energy o Turkey02: Richard Morningstar, US

Ambassador to Azerbaijan03: Lunch session04: Alan Rousso, ManagingDirector, European Bankor Reconstruction andDevelopment (EBRD), London05: Taner Yildiz, Minister oEnergy o Turkey06: Bakytzhan Sagintayev,First Deputy Prime Minister oKazakhstan

05

01 01

02 03

04 06


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The event page o the World EconomicForum Strategic Dialogue on the Futureo the South Caucasus and CentralAsia provides access to a richer levelo content rom the meeting, includingvideos, photographs, session summariesand webcasts o selected sessions.

http://www.weorum.org/

Further Inormation Contributors

Anastassia Aubakirova, Director, Head oRussia and CIS

The report was written by Nicholas vanPraag.

Editing and Production

Kamal Kimaoui, Director, Head oProduction and Design

Nina Vugman, Editor

Photographers

Elmar MustaarovMagid Aliyev

This report is also available to downloadin PDF or HTML ormat:

http://www.weorum.org/SouthCaucasus and Central Asia2013/report/pd

http://www.weorum.org/SouthCaucasus and Central Asia2013/report/html

More inormation on the World EconomicForum Strategic Dialogue on the Futureo the South Caucasus and Central Asia

can be ound using the ollowing links:

Programmehttp://www.weorum.org/South Caucasus and CentralAsia2013/programme

Webcastshttp://www.weorum.org/South Caucasus and CentralAsia2013/webcasts

Photographshttp://www.weorum.org/LatinAmerica2013/photos

Bloghttp://www.orumblog.org


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Upcoming Meetings

World Economic Forum on Latin AmericaLima, Peru 23-25 April 2013

Under the theme Delivering Growth, Strengthening Societies, regional and global leaders participatingin the World Economic Forum on Latin America will discuss the opportunities and challenges that lieahead to achieve the regions ull potential. With support o President Ollanta Moiss Humala Tasso, theGovernment o Peru and the Forums Strategic and Regional Partners, the meeting will provide an idealplatorm to discuss the critical actors behind the regions resilience and dynamic development models.

For more inormation, please e-mail: [email protected]

World Economic Forum on AricaCape Town, South Arica 8-10 May 2013

Under the theme Delivering on Aricas Promise, the 23rd World Economic Forum on Arica will providean important platorm or regional and global leaders rom business, government and civil society todeepen the continents integration agenda and renew commitment to a sustainable path o growth anddevelopment.

For more inormation, please e-mail:[email protected]

World Economic Forum on the Middle East and North AricaDead Sea, Jordan 24-26 May 2013

Under the theme Shaping the New Regional Context, the World Economic Forum on the Middle Eastand North Arica will examine what policies and business strategies can support the aspirations o theregions economies while catalysing the dialogue necessary to overcome long-standing ault lines andacilitate a truly multistakeholder partnership or the uture.


World Economic Forum on East AsiaNay Pyi Taw, Myanmar 5-7 June 2013

Under the theme Courageous Transormation or Inclusion and Integration, the 22nd World EconomicForum on East Asia will be the frst leading international gathering o senior decision-makers romindustry, government, academia and civil society to be held in Myanmar ater a series o bold economicand political reorms. Through its unique multistakeholder platorm, the meeting will be an unrivalledopportunity to understand and shape Myanmars ongoing reorms and reconciliation process.


For a full list of upcoming meetings, please consult the World Economic Forums website: www.weforum.org.


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World Economic Forum9193 route de la CapiteCH-1223 Cologny/GenevaSwitzerland

Tel.: +41 (0) 22 869 1212

The World Economic Forumis an independent internationalorganization committed toimproving the state o the worldby engaging business, political,academic and other leaders osociety to shape global, regionaland industry agendas.

Incorporated as a not-or-proftoundation in 1971 andheadquartered in Geneva,Switzerland, the Forum istied to no political, partisanor national interests.

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