Recently, a growing debate has emerged about the changing geopolitical landscape in Central Asia, with major superpowers vying for control of its resources, expanding their presence to achieve political objectives, and advancing their key transit routes. Many experts contend that the world’s leading superpowers are increasingly interested in investing in Central Asia, and these investments could generate significant positive spillover effects on the region’s economic growth.
Sobir Kurbanov.
Conversely, some analysts and regional leaders advocate for a technological quantum leap to develop a digital and knowledge-based economy through digital corridors and AI data centers. While both external developments put Central Asia on the global radar, and technological progress is clearly vital, there are other more fundamental policies and reforms that must be prioritized to ensure sustainable development that is resilient to external shocks, allowing the region to maintain its agency, value, and prosperity on its own terms. This strategy would make Central Asia less reliant on external geopolitical and geoeconomic trends.
Central Asia’s future path of development appeared to be less dependent on geopolitical shifts but more on the internal fundamentals. Instead, it requires the region to make practical steps on domestic priorities and reforms. To summarize it depends on the ability of its leaders to achieve significant progress in addressing the following critical challenges: improving the quality of governance and institutions to create fair, transparent rules and level playing field for businesses and public services for citizens; boosting productivity and creating sustainable jobs; addressing the environmental challenges and mitigating climate change; improving human capital; and making practical steps toward regional integration.
Bleak picture on intra-regional economic connectivity
Although many high-level political commitments have been made and agreements signed to promote regional integration, the levels of intra-regional trade among Central Asian countries remain low or grow very slowly. As a result, Central Asian economies today remain structurally similar, heavily reliant on the export of a few primary commodities, with limited value-added production and low levels of intra-regional trade. Trade among Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan represents less than 10–12 percent of the region’s total trade turnover (WITS, 2023)—a fraction of the integration achieved in ASEAN (≈25 percent) or the European Union (≈60 percent). Cross-border investment and financial flows are equally modest: intra-regional FDI constitutes under 5 percent of total inflows, and regional energy exchanges, though extensive in potential, remain governed by short-term bilateral contracts rather than coordinated market mechanisms. This also demonstrates poor progress or a lack of mutually beneficial and competitive value chains, especially for higher-value products. It also indicates that barriers and costs for intra-regional trade and transit are still high. Often, transport and logistics companies, business associations, and individual businesses complain about frequent delays and high informal costs when crossing borders (sometimes due to corruption), while customs agencies continue to operate slowly and ineffectively. Finally, there is no unified intra-regional trade and transit agreement, as all countries operate under conflicting Eurasec or WTO rules.
Value chains are there, but neither competitive nor complementary
Let’s take two probably most potentially competitive value chains that can be easily developed in the region and won’t require significant investments – agriculture and tourism. In a nutshell, Central Asia faces significant structural barriers to developing competitive regional value chains in agriculture and tourism. Agricultural production remains fragmented and low in productivity, with limited access to modern technologies, weak logistics, and inconsistent sanitary and quality standards across borders—resulting in most exports being unprocessed raw goods. In tourism, despite rich cultural and natural assets, the region struggles with poor connectivity, fragmented branding, and restrictive visa regimes, leading to short-term, low-value visits rather than integrated, high-spending tourism. These challenges—compounded by inadequate regional coordination, infrastructure gaps, and regulatory fragmentation—prevent the emergence of cross-border industries that could diversify exports, create jobs, and strengthen economic integration across Central Asia.
Regional cooperation institutions serve geopolitical rivals but not Central Asia as such
Another important observation is that despite several heads of Central Asia consultative meetings that took place so far, no regional cooperation, integration secretariat, or other type of institutional platform was created at the state or business level. Instead, over the past three decades, a proliferation of regional organizations with overlapping memberships and mandates—from the Eurasian Economic Union (EAEU) and the Collective Security Treaty Organization (CSTO) to the Commonwealth of Independent States (CIS) and the Central Asia Regional Economic Cooperation (CAREC) program—has created a ‘spaghetti bowl’ of weak and fragmented institutions – none of which has a unique mandate and value to advance intra-regional cooperation omitting external interests and geopolitical pressure.
Business-level integration also remains underdeveloped. While some business associations create regional chambers of associations (e.g. Central Asia Fintech Association, Central Asia e-commerce and tourism association), those lack an official mandate and state approval to advocate for regional market integration policies.
Back to fundamentals
A weak rule of law coupled with weak state-dominated institutions remains a significant obstacle, hindering regional integration and harming the investment climate that attracts serious, long-term investors. Despite notable progress in passing modern business and investment laws and regulations, actual implementation lags behind. Businesses and investors are concerned about excessive bureaucracy, the high costs of regulatory and tax compliance due to administrative expenses (not taxes), and, most importantly, the insecurity of their property and investors’ rights. Certain business groups and government agencies also benefit from national market protection measures, while individual concessions to specific businesses and investors are granted in a non-transparent manner. In this environment, mostly speculative investors are well-positioned to operate in Central Asia.
Last but not least, weak economic and labor productivity, along with the low quality of human capital and limited skills relevant to a modern, technology-driven economy, continue to hold back Central Asia’s economic potential. Despite steady GDP growth averaging around 4–5 percent annually in recent years, labor productivity in Central Asia remains less than one-third of the OECD average and only about 40 percent of the global median, according to World Bank and ILO estimates. The average output per worker in Kazakhstan is roughly $35,000 (PPP), while in Uzbekistan and Kyrgyzstan it stands at $20,000 and $12,000, respectively—well below the levels of comparable upper-middle-income economies.
Education and skills gaps exacerbate this problem: only 60 percent of Central Asia’s working-age population possess secondary or higher education aligned with modern labor-market needs, and firms across the region consistently report “skills mismatch” and “shortage of technical specialists” among their top three constraints to business expansion, according to the World Bank Enterprise Surveys.
Unless major reforms in education, vocational training, and innovation policies are carried out, Central Asia risks staying stuck in a low-productivity, resource-reliant growth model that cannot keep up with global value chains. The region’s economies continue to depend heavily on extractive industries and low-value-added sectors, with limited technological upgrades and weak links between production, research, and industry.
Labor productivity gaps with advanced and even similar emerging economies remain significant—up to three times larger in some cases—while insufficient investment in innovation, digital skills, and technical education limits diversification. Central Asia’s companies stay mostly isolated from regional and global production networks, unable to grow or specialize competitively. This low-productivity setup also hinders the development of a unified regional market: weak industrial connections, limited cross-border trade in intermediate goods, and inconsistent standards make it hard for Central Asian countries to build efficient regional value chains that could support domestic and regional demand. Without a focused effort on structural change and regional cooperation, the region risks missing the chance to move up the value chain and develop a vibrant, innovation-driven regional economy.
The author is Sobir Kurbanov, an analyst and policy expert.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the position of The Astana Times.
