American Business and Government: Partners in Central Asia

Wherever I go in this job, whether to Central Asia, in this country, or elsewhere, I try to talk to business, especially American business, about what we are doing in this part of the world.

I spoke to Bob's Chamber about five months ago. I've done roundtables with American business in all five Central Asian capitals. I've sat down with Japanese business in Tokyo and Turkish business in Istanbul. It's important for U.S. officials— any official—to do this because there is so little we in government can do that we cannot do better with partners. And we know we have few better partners in Central Asia than you in the American business community.

It's the job of governments to set the stage, to send signals to the private and financial sectors that diplomatic relations are smooth, and to make clear that we and our Central Asian partners share priorities and outlooks. Governments create the regulatory, legal, and operating frameworks for markets. But at the end of the day, it's private companies that have to do the work. You don't have to look very far to see that kind of partnership in action, just to the Baku-Tblisi-Ceyhan (BTC) pipeline, which set a new environmental, social, and design benchmark for energy transport worldwide. Put simply, BTC could never have happened without a close partnership between government and business. Governments don't build pipelines. You do. And so we in government need to talk to you, to listen to your concerns, and, I think, to commend you for your important role in the emergence of one of the world's most vital regions.

Of course, as you all know firsthand, Central Asia can be a challenging environment to work in. And so what I thought I would do today is to talk briefly about three things:

• Our overall approach to Central Asia ;
• The importance of both micro- and macroeconomic reform to sustain growth, create opportunity, and help to attract and sustain American investment; and then
• A very quick overview of how we see the business environment in each country, with a particular focus on Kazakhstan.

So, first, our approach to Central Asia. It's quite simple, really: We aim to support the development of fully sovereign, stable, democratic nations, integrated into the world economy and cooperating with one another, the United States, and our partners to advance regional stability and security. We don't work only on economics and trade. We are working in multiple areas simultaneously: fostering security; facilitating economic change; advancing regional integration and cooperation; and of course promoting democratic reform. Pretty straightforward.

But you might not think so from reading some of the media: Pick up a newspaper, read about Central Asia, and the stories nearly involve “chessboards” and geopolitical “blueprints.” Let me be clear: we don't regard Central Asians as pieces on anyone's chessboard. In fact, I would argue that, if anything, it has been the other way around: Over the past fifteen years, Central Asians have demonstrated remarkable skill at turning great power rivalry into an asset that maximizes their independence.

We put Central Asians themselves at the center of our approach to this part of the world.

We view strong, sovereign, independent nations as our primary partners in this region. And we reject the notion, once again so fashionable, that Central Asia is merely an arena for outside powers to compete for influence. Central Asians are not the objects of our struggles with others. They are the very focus of our policy. And since Central Asians are the focus of our policy, we have every incentive to help them tap economic opportunity in all four directions on the compass: west, east, north, and south. And that's just what we are trying to do. We are trying to help Central Asians forge some new connections to the global economy: to trade and investment opportunities, cross-border energy projects, additional deep-water ports, and the enormous possibilities of the global market.

My point about the economic area is that our approach to trade, quite naturally, reflects the same logic as our longstanding approach to regional energy development: We encourage the development of as many trade links in as many directions as possible. And we don't think Central Asians should foreclose their options. Countries should never be left with only one option—one market, one trading partner, one vital infrastructure link. 

Quite logically, more options in more directions, from the steppes to the sea, mean more opportunities and, thus, more independence. That's why trade and business are so important to our overall approach: trade helps to forge linkages and creates new opportunities.

Our nation's foreign policy objectives are intricately tied to its economic and commercial interests: American business plays a key role in sustaining long-term growth in the global economy, creating jobs, and improving standards of living around the world. By promoting growth and cutting poverty, creating equality of opportunity, reducing corruption, and strengthening the role of civil society, trade invests people (and countries) in a positive vision of their future. And when people have a larger economic stake in their society, they also assume a greater say in how that society is run.

Our U.S. government agenda for reform tracks neatly with elements of the U.S. business agenda for reform. And this takes me to my second point: the importance of both micro- and macroeconomic reform, and a more open trade and investment climate. Neither we in government nor you in business can promote, nurture, or sustain American investment without a strong commitment by Central Asian governments to market-based reform — and to the consistency and transparency necessary to maintain a welcoming investment environment. We believe these same elements of reform can help all five Central Asian states, with or without hydrocarbon resources.

Why is market-based reform so important to American (and, for that matter, to Central Asian) business? When a country becomes an economic reformer, it e mpowers its people by making it easier to start a business. Just look at the World Bank's 2007 indicators report, Doing Business, which involved an in-depth cross-national study. The Report tells us it takes 2 days to start a business in Australia, 5 in the United States. But it takes 20 days in Kazakhstan, 29 in Uzbekistan, and a staggering 67 days to start a business in Tajikistan. When a country becomes an economic reformer, it attracts investment and expands trade across borders. The Report tells us it takes a company 22 days to comply with the procedures to import goods into China. But it takes 127 days—nearly six times as long—to import goods into Kyrgyzstan.

When a country becomes an economic reformer, it reduces the crushing bureaucratic impediments that stifle business. The Report tells us it takes just 2 official documents to export goods from Hong Kong, 5 from South Africa, 6 from Malaysia. But it takes 10 permissions in Uzbekistan, and no less than 14 documents to export from Kazakhstan and Tajikistan. The Bank's research and other research show that when a country becomes an economic reformer, it creates jobs and promotes growth. These are the rewards for countries that open and compete: countries that are more open grow faster than those that are closed.

This is why the United States has made both micro - and macroeconomic reform a top development priority, including in Central Asia. We are assisting countries that want to improve their business climates in three key areas: upholding the rule of law; fighting corruption; and promoting transparency.

And these three areas are tied to good governance and democratization as well. Through our assistance programs, we are active in all three. In Kazakhstan, for instance, our Agency for International Development (USAID) works with local business associations and local and regional government to identify barriers to business, and then works together to overcome them. Our Judicial Assistance Project encourages private enforcement of contracts.

We've also developed programs to fight corruption: a major Administration anti-kleptocracy initiative; the Millennium Challenge Account; and support for stronger, more independent judiciaries, legislatures, and oversight bodies, as well as independent media, civil society, and public education.

Beyond microeconomic reform, we also want to help Central Asian partners create the macroeconomic conditions to assure more foreign investment. Central Asian officials tell us they seek a larger U.S. commercial role in their countries. But the power of American investment lies in the private sector, and so we need to create the foundations and conditions that will bring more American business to the region.

In Dushanbe last year, a senior Tajik official told me the United States should, as he put it, “be more like China,” and like others who offer state-backed loans in the hundreds of millions and elaborate project credits. But we don't have state enterprises that can be instructed to invest for geopolitical purposes. Nor can we tell our private investors where and how to invest. It's the American private sector, not government, that made us the Number One foreign investor in Kazakhstan, to the tune of some $14 billion since independence.

So we tell our Central Asian partners that attracting private investment is to their advantage. Cross-border capital flows have tripled in the past decade, and foreign capital stocks now outnumber global gross domestic product 2 to 1. But very few of these investment flows are reaching Central Asia. Policies that encourage transparency, predictability, non-discrimination, and a stable macro-economy are critical to attract investment, not least American investment.

This is not solely an “American” view. I have heard it, too, from Japanese, Koreans, Europeans, and Russians. Just last week, ITAR-TASS quoted Russia's trade minister, Andrei Sharonov, complaining in Tashkent that Russian firms have trouble repatriating their earnings from Uzbekistan, often waiting up to three months for conversion and transfer. Reform is critical, and we are working with Central Asian governments in a variety of ways to support it.

We also are promoting trade liberalization as a step to greater integration in the global economy. We support WTO membership for all five Central Asian countries: Kyrgyzstan joined several years ago. Kazakhstan is well on the road to accession. And we hope Tajikistan and the other countries will see the benefits of joining and proceed down the same path. To help, we have established a U.S.-Central Asia Trade and Investment Framework Agreement, or “TIFA,” the members of which have met twice and will meet again this summer. The Agreement includes all five Central Asian countries. Led by our U.S. Trade Representative, it allows the United States and our partners to jointly identify impediments to the free and mutual exchange of goods and services. And working together, we can then address those barriers through technical measures, conferences, the exchange of ideas, experiences, and so on. Nearly every issue that arises in TIFA discussions has implications for WTO accession. Thus working through the TIFA can bring Central Asian countries closer to the goal of fully joining the world trading system.

Let me conclude by just giving you a quick tour of the region. Kazakhstan has stood out for its economic reforms and links to the world market. In addition to its strong push for WTO accession, the government has reached beyond investments in oil and gas, which totaled more than $46 billion from foreign investors as of July 2006.

Our own bilateral economic relationship is robust and increasingly diverse. We have some concerns about challenges to contractual rights, legislated preferences for domestic companies, and mechanisms for government intervention in foreign company operations, particularly procurement decisions. But there is a lot of good news.

No longer just focused on oil, U.S. business in Kazakhstan is expanding: General Electric is building a factory to manufacture locomotives for Kazakhstan and the regional market. FedEx is opening a new hub in the commercial capital of Almaty. AES has put over $200 million into power generation. And Access Industries has invested in coal mining.

In 2005, almost 30 percent of total FDI in Kazakhstan came from American companies. And over the past five years, U.S. exports to Kazakhstan have increased almost 300 percent. To help advance these opportunities, our two governments will roll out a new initiative this summer: a bilateral Public-Private Partnership dialogue to be led by both governments and our chambers of commerce. The Partnership will support our bilateral Houston Initiative by focusing joint efforts on small- and medium-sized enterprise development, sectoral diversification, transparency, regional integration, and so on.

We are committed to working with Kazakhstan. And we support its efforts to build a more diverse economy.

Of course, it would be hard to ignore the importance of oil and gas. The Caspian region contains some of the largest hydrocarbon discoveries in recent decades, and the Kashagan field is the single largest oil field discovered since Alaska 's North Slope. It's sometimes too easy to assume that energy markets function well as "natural monopolies." But it has been shown this simply is not the case. Thus our continued support for an increased flow of Caspian resources to world markets aims to increase healthy competition.

We hope to see more resources reaching more markets through more routes, not least because this will increase competition in the sector. And we are focusing on enabling a new generation of pipelines to follow the path of BTC and the South Caucasus Gas Pipeline. Of course, as our former Deputy Secretary, Richard Armitage, once put it, “Oil alone cannot integrate Kazakhstan into the global economy. Oil alone will not create enough jobs for the country's youth or improve life for those mired in rural poverty. And oil alone will not continue to attract foreign investment.”

We look to Kazakhstan to make political reforms that will establish the democratic institutions fundamental to stability. Kazakhstan 's great challenge ahead is to manage its rapid growth. And to ensure that its benefits accrue to all of Kazakhstan 's citizens. The best guarantor of Kazakhstan 's future is a prosperous, stable, democratic society, where all citizens have a stake in the political system, if—as we also hope— Kazakhstan is to join the world's fifty most competitive countries over the next decade.

Uzbekistan, which I visited just two weeks ago in an effort to improve relations, offers a different picture. It has attracted less FDI per capita than any of its neighbors, despite its strategic location and considerable economic potential. Our trade is decreasing, not increasing. And ironically, this comes at a time when overall U.S. trade with Central Asia has increased more than 100 percent since 2001.

We are committed to working with Uzbekistan to try to improve this picture. But in 2006, U.S. goods exports to Uzbekistan were down 79 percent from 2003. And no wonder. As significant as these statistics are, long-operating joint ventures have faced a number of challenges in Uzbekistan : ambiguous legislative requirements, cumbersome procedures, and a capricious regulatory environment.

By contrast, in Tajikistan and Kyrgyzstan, trade with the United States has increased at a steady pace. Tajik exports to the United States were just $1.2 million in 2002. But in 2005, this figure had jumped some 200 times to $241 million. In 2001, our exports to Kyrgyzstan were around $27 million. By 2006, this figure had nearly tripled to more than $71 million.

Finally, there is Turkmenistan, with abundant gas reserves and other resources, which could help to bring new levels of prosperity to the country and the region. The new government has indicated its interest in developing the country's economic potential. We want to help, and we have moved quickly to reach out to the new leadership in expectation that conditions will improve.

My boss, Assistant Secretary Richard Boucher, attended President Niyazov's funeral in December and stressed the importance of making a fresh start and, as Secretary Rice has put it, “turning a page.” I followed up in Ashgabat three weeks later with a detailed and comprehensive message of U.S. interest in improving relations. An interagency team of development experts met with thirteen ministries and traveled to three of five provinces in late January. Assistant Secretary Boucher attended the new President's inauguration, discussing with him the prospects for cooperation in key areas: economics and trade; democracy and human rights; security cooperation; education; health; and transnational issues. And my colleague, Principal Deputy Assistant Secretary Steve Mann, led an expert oil and gas delegation earlier this month.

Since this is a business audience, let me focus on that element of our relations: Turkmenistan has one of the largest reserves of natural gas in the world. But developing it will be costly because the next phases will be technically challenging. Still, this potential wealth will be immensely important for the people of Turkmenistan. Just look at Azerbaijan or Kazakhstan and you can see what increased energy exports and smart investment policies can mean for a country's prosperity.

So to tap and transport its energy resources, Turkmenistan would benefit from the technology Western firms can bring. And we hope its government will be open to private sector help, not just in production but also for avenues of transport. Meanwhile, we will continue to push for reform of state control mechanisms and of a restrictive currency exchange system. Both have created a difficult climate for FDI.

Why does the U.S. Government care about all this? Why do we care so much about business and investment in Central Asia? We care precisely because we know trade is a vehicle that can sustain growth, expand wealth, and broaden opportunity and partnership. For our part, we are working to offer a positive vision to this region. And we want all five Central Asian countries to be part of it.

So as we push for democratic progress and cooperate across a spectrum of areas, from education to counternarcotics, we will continue to support you in American business in your effort to seek opportunity and enhance prosperity across Central Asia.

Thank you.