2 key challenges for Eurasia

As an economic policy adviser and someone who teaches policies for competitiveness, I often wonder which policies governments of the Eurasian region should pursue individually vs collectively to enhance their competitiveness?

Having contributed to the World Economic Forum’s scenario work on the South Caucasus and Central Asia, my view on this question is clear: work together, not alone. In fact, the question is not only “which” policies to pursue alone or together, but rather “how” to move from alone to together.

Einstein wrote: “We cannot solve our problems with the same level of thinking we used when we created them”. I believe the time is right for policy-makers of the region to look at collaboration with new lenses to address common competitiveness imperatives. Two challenges are ahead of them:

Lack of trust – In a region deeply marked by the heritage of the Soviet Union, policy-makers may find it difficult to go beyond the national focus paradigm to embrace collaboration as a modus operandi. Opposition to the failed Soviet so-called regional “collaboration” defined the renewed national drive in the first place. As such, change has to come from the mindsets of policy-makers first and foremost. No collective policies can be envisaged without the premise of a common and shared vision.

Limited national capabilities– The Forum’s scenario report highlights three areas which could underpin such a vision: maximizing the potential of energy resources; creating diversified economies; and integrating into global value chains.

That’s all good and fine, but figure 1 below, the Whiteshield Partners Capability and Innovation Potential Index 2013, (source: UN Comtrade database, Whiteshield Partners) also highlights another reality: most countries of the region are far behind the curve in terms of capability, innovation and knowledge building. Would one work for a common purpose – that failed in the past – when its own house is on fire? I doubt it.

Legend – Tier 1: Strong capabilities – Tier 4: Limited capabilities

To go even further, and building on the scenarios highlighted in the report, one could see two opposing visions and working models: “National Champions” vs an “Organization for Economic Cooperation & Development in Eurasia”. In other words, building competitiveness based on national drivers solely or collaborating on key economic topics.

The first case would support the current reality: some countries with vast lands to manage, others with complex sub-national regional issues or governance challenges and most with significant administrative and policy barriers to tackle to develop strong economic capabilities, all before any joint work can effectively be envisaged.

However, to unlock their competitiveness potential, most countries also have an imperative to reduce trade barriers to boost a very limited intra-regional trade, align their efforts to connect transport and logistics routes allowing them to compete globally and focus on common key environmental challenges. Most importantly, they can build strong negotiation positions on the international scene – like in the WTO – leading to stronger diplomatic and economic credibility. Such a model could rely on a limited cost-sharing approach to help tackle joint and immediate win-win economic policies similar to the OECD model. Could this work in the short term? I believe so.

Right timing to collaborate – Some events may trigger such a collaboration even further: A more open Iran that would become a major competitiveness challenger – or partner – for the region; increasing geopolitical pressures that would trigger the formation of joint bodies similar to the OECD or even OPEC, and Increasing global energy and food security demands leading to the acceleration of joint infrastructure and distribution projects.

The time is right for leaders of the region to focus on specific common competitiveness challenges and to reinforce their weight on the global scene.

Author: Fadi Farra is Co-Founder and Partner at Whiteshield Partners, a global economic and policy advisory firm. He is a former OECD official and economic adviser to the Prime Minister of Kazakhstan.

Image: The Baiterek building in Astana, Kazhakstan. REUTERS/Shamil Zhumatov