Unlocking Regional Connectivity through boosting Trade Digitalization in Central Asian States

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Throughout history, Central Asian countries have benefited from the ancient Silk Road which connected East Asia with Europe and later on other parts of the world by making Central Asia as a true crossroads of civilizations. Today, Central Asia still has significant potential for connectivity and economic development; meanwhile, this potential and opportunities have so far been untapped, as the region are not yet fully integrated into the global economy due to logistical and connectivity constraints.

Apparently, Central Asia, the landlocked part of the Eurasian continent, still lacks connectivity infrastructure, including digital connectivity as the region also located far from the world’s main fiber optic routes under the sea and oceans.[1]

Furthermore, due to various factors, the five Central Asian states have different trading regimes and trade relations, including the movement of labour and capital. For example, Central Asian states, with the exception of Turkmenistan, are members of the Commonwealth of Independent States’ free trade zone; Kazakhstan and Kyrgyzstan, as members of the Eurasian Economic Union, benefit from the common customs area; and these two countries and Tajikistan are members of the World Trade Organization (WTO). As a result, various trading regimes impede greater intra-regional cooperation, exchange of goods and services.

However, Uzbekistan and Turkmenistan have committed to becoming full members of the WTO in the coming years. For example, Turkmenistan intends to join the WTO by 2030,[2]  and the country’s Working Party, a key mechanism for WTO accession negotiations, was established on February 23, 2022.[3]

Uzbekistan, for its part, has made progress toward WTO accession[4]  since it was formally resumed with the fourth Working Party meeting in July 2020, followed by four more meetings, the most recent of which was held in May 2024. According to Deputy Prime Minister Jamshid Khodjayev, Uzbekistan intends to join the WTO before the 14th Ministerial Meeting, which will be held in Cameroon in 2026.[5]

According to experts “joining the WTO would allow the Central Asian stateы to expand their trade rapidly and liberalize their trade policy at relatively low costs by gaining better market access to many countries that are already members of the WTO, including their main external partners – China, Russia, and the EU”.[6]

Although Central Asian states mostly practice bilateral agreements on regulating and stimulating mutual trade, there is high demand for unification of inter-regional trade regimes and economic relations, which subsequently would deepen regional trade and economic cooperation.

In this vein digital connectivity and digital trade policies appear to be more important determinants of trade costs for developing countries than they are for high-income countries. Joint efforts of neighbours on inter-regional trade through digital connectivity measures deliver a double dividend.[7]

Digital trade is increasingly important and comprises both digitally ordered trade in goods and services (cross-border e-commerce) and digitally delivered trade (services delivered internationally through the Internet or other networks).

Digitalization of trade has the potential to bring significant benefits for regional cooperation in Central Asia by promoting economic integration, reducing trade barriers, increasing efficiency, promoting transparency, and fostering innovation.[8]

Under the impact of the global pandemic Central Asian states have accelerated to “digitalize and streamline and reform customs and trade procedures and to support e-commerce.”[9]

Consequently, the most recent United Nations Global Survey on Digital and Sustainable Trade Facilitation^[10] on Central Asian region (Figure 1) reveal that the average trade facilitation implementation rate in Central Asian states in 2023 has increased by 29 points to 67%, up from 38% in 2017.

According to the Survey, Uzbekistan has demonstrated the highest score among countries of Central Asia in 2023 (Figure 2). Uzbekistan leads with an 89% implementation rate not only in Central Asian region but also in South and East Europe, Caucasus.[11] The implementation rates of Kazakhstan and Kyrgyzstan on trade facilitation and paperless trade measures in 2023 stand at 76% and 72%, respectively, higher than the regional average whereas Tajikistan (51%) and Turkmenistan (49%) have lower scores. Turkmenistan has been studied by the Survey for the first time in 2023 (Figure 1).

Figure 1 Trade Facilitation and Paperless Trade Scores of Central Asian states in 2023

Progress of Uzbekistan in trade facilitation score and cross-border paperless trade (Figure 2) since 2017 should be mentioned. Due to its central location in the region and borders with the rest of Central Asian states, positive changes in Uzbekistan directly encourages neighbouring countries and regions to improve connectivity and increase international trade.

Additionally, in order to bring customs administration to a new stage, dramatically reduce the human factor by digitally transforming customs and cargo operations, transform the customs sphere into a corruption-free system based on the principles of openness, transparency and credibility, as a result of digitalization, customs clearance times in Uzbekistan were reduced by an average of two. For example, if processing export deliveries took 5 hours and 42 minutes in 2017, in 2023 processing time for export deliveries has become only 30 minutes.[12] These measures have also contributed to Uzbekistan’s cross-border trade with the rest of neighbouring Central Asian states.

Figure 2 Cross-Border Paperless Trade Dynamics in Uzbekistan during 2015-2023

Moreover, positive trends of joint efforts of Central Asian states for increasing regional trade through digitalization are also observed at regional level. On 25-26 of April 2023 signing ceremony of the “Statement on cooperation between the National Trade Facilitation Committees of Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan in the field of trade facilitation” was organized in Tashkent, where representatives of all five Central Asian states (a delegation from Turkmenistan joined the meeting as observers) demonstrated joint implementation of measures to promote and facilitate regional trade. Moreover, by national committees of Central Asian states – “Network of National Trade Facilitation Committees in Central Asia” was established which will promote initiatives on digitalization of trade procedures and improvement access to information for private sector.”[13]

Noteworthy that since 2017 because of Uzbekistan’s efforts to prioritize friendly and mutually beneficial relations with all neighbouring Central Asian states, political dialogue and mutual trust in Central Asian region have been strengthened. By the end of 2023 the volume of trade turnover of Uzbekistan with Central Asian states has increased by 3 times compared to 2016 and amounted $7.2 billion which demonstrated the remarkable increase of regional trade and economic relations between the Central Asian countries. “The substantial liberalization of Uzbekistan’s trading regime since 2017 is one example and may have positively impacted the country’s cross-border trade.”[14]

Indeed, integration in Central Asian region has been “re-launched in 2018 after a 13-year interruption. The main initiator of this round of integration is Uzbekistan and it has received a positive response from Kazakhstan. The side-by-side tandem driving this integration is an important reason for improved regional trust and relations and resolution of longstanding territorial disputes have significantly improved the business environment and trade relations.”[15]

According to senior visiting research fellow of the King’s College London Dr.Matveeva’s observation cooperation in Central Asian region “has improved thanks to the positive role of Uzbekistan. The border delimitation issue between Kyrgyzstan and Uzbekistan was finally settled in January 2023, and a simplified border crossing procedure will foster trade and connectivity in the Fergana Valley.”[16]

Without a doubt, in a relatively short period of time since 2017, Uzbekistan has achieved impressive results in strengthening bilateral relations with all Central Asian states by establishing and expanding strategic partnerships (Turkmenistan and Kyrgyzstan) and signing treaties on allied relations (Kazakhstan and Tajikistan).

The peaceful, pragmatic, and active diplomacy of Uzbekistan has resulted in such important bilateral and multilateral agreements and treaties with neighbouring countries.

Furthermore, the fifth priority direction of the “Uzbekistan – 2030” Strategy, titled “Consistent continuation of the policy based on the principle of a safe and peace-loving state,” by raising practical cooperation in the Central Asian region to a qualitatively new level prioritizes strengthening close cooperation with neighbouring countries in various areas; deepening multifaceted strategic partnership and alliance relations; achieving free movement of citizens, goods, services and capital; creating a common tourist space in the region; developing mutually beneficial relations with Afghanistan and promoting its economic recovery.

Accordingly, Uzbekistan has increased its bilateral and multilateral interactions with neighbouring countries, bringing new dynamism and ambitious goals.

These have been observed in the increased exchange of high-level visits, joint regional events, and agreements signed at various levels, as well as the dynamic growth of bilateral trade volume.

For example, open-source data provided by Statistics Agency under the President of the Republic of Uzbekistan demonstrate that Uzbekistan’s trade turnover with Kyrgyzstan reached $1.2 billion by the end of 2022, and with Turkmenistan it surpassed $1 billion in 2023. In the coming years, Uzbekistan and Tajikistan intend to increase their trade turnover to $2 billion, by establishment of cross-border trade zones among other measures. Furthermore, Uzbekistan intends to increase mutual trade volume with Kazakhstan to $10 billion a year in the near future by implementing a full free trade regime and replacing imports from third countries. Kazakhstan and Uzbekistan account for 57% of all Central Asian trade. Trade turnover was $4.5 billion in 2023, exceeding $1.2 billion in the first four months of 2024.^[17]

The shift to a free trade regime, as well as structural adjustment, is viewed as a strategy for Uzbekistan and Kazakhstan's economic integration. Both countries want to maximize their economic potential and build resilience to global economic fluctuations.^[18]

Overall, given the current stage of Central Asian states regional cooperation, it would be best practice to provide and promote digitalized (paperless) import and export procedures in trade-related services and intra-regional trade. In this regard, since 2017, Uzbekistan and Kazakhstan have made the most progress in streamlining procedures and transitioning to paperless trade, which should be developed and expanded in collaboration with other countries. These advanced cross-border paperless trade relations and connectivity will positively contribute the entire Central Asian region for the benefit of population and sustainable development.

As there is currently no “digital agenda of the region” involving all five Central Asian states, an inclusive “Digital Agenda for Central Asia” should be developed to serve as a regional digital integration platform. Indeed, regional integration is critical to assisting regional countries in overcoming challenges and maintaining mutually beneficial cooperation. As the Central Asian region, particularly Uzbekistan and Kazakhstan, is well-positioned and poised to become a major hub for digital innovation and entrepreneurship in the coming years, it is critical for Central Asian states to collaborate to develop common policies and standards for digital technologies in order to improve regional connectivity. In this vein, effective use of digital technologies in key areas can unlock Central Asian states potential for increased regional integration and sustainable development.

[1] Razzaq, A., Babayev, T., Ahmed, M., Avazov, Sh., Abbas, Q., & Tumurpurev, D. (2022). Digital CAREC: Analysis of the Regional Digital Gap (Phase 1). CAREC Institute.