Special address by ADB President Takehiko Nakao at the 15th Central Asia Regional Economic Cooperation Ministerial Conference on 26 October 2016 in Islamabad, Pakistan.
Your Excellency Prime Minister Muhammad Nawaz Sharif, Ministers and delegates from Central Asia Regional Economic Cooperation (CAREC) countries, development partners, distinguished guests, ladies and gentlemen:
I am honored to join you at this 15th CAREC Ministerial Conference here in Islamabad. I would like to thank the Government of Pakistan for hosting this important gathering, and I extend my appreciation to the people of Pakistan for their gracious hospitality.
I highly appreciate that this 15th meeting is being held in Islamabad since we recognize the importance of Pakistan as a CAREC member and its geographical potential to link other CAREC members to the sea. Also, the Government of Pakistan’s vision for trade corridors and regional cooperation are highly complementary to CAREC’s own vision.
In this address I would like to cover two main topics: first, the contribution of the CAREC Program to advancing development in the 10 CAREC countries soon to be 11; and second, the need for the CAREC Program to adapt to the changing economic and development conditions in the region and beyond.
Before discussing these issues, taking this opportunity, I would like to welcome Georgia into the CAREC family. This will inject new blood and vibrancy into the Program and help the CAREC family grow stronger.
Contribution of the CAREC Program
On this 15th anniversary of the CAREC Program, it is fitting that we acknowledge CAREC’s important contribution to the region’s development.
The CAREC Program has implemented 174 projects worth $28.9 billion since it was established in 2001. ADB has contributed $10.1 billion as loans and grants. I would like to highlight some of the ways the CAREC Program is advancing regional cooperation:
A major achievement has been greater transport connectivity. Along the six CAREC transport corridors, 7,230 kilometers of road and more than 4,500 kilometers of rail have been built or rehabilitated. This has helped strengthen connectivity and trade across the region and with other regions.
With greater transport connectivity comes improved market connectivity. Transport connectivity, along with improvements in trade facilitation is helping attract more private investments, create jobs and foster innovation for increased competitiveness as connectivity reduces the time and cost to trade.
There has also been strong achievements in energy cooperation. 3,835 kilometers of power transmission lines have been constructed during 2013-15 which is supporting the expansion of energy trade between energy surplus Central Asian countries and energy deficit countries in South Asia, including Afghanistan, Pakistan, and beyond.
"There is no doubt CAREC has made a valuable contribution to the region’s development. However, whether CAREC can continue playing an effective role in future will depend on how it adapts to changing economic and development conditions in the region and beyond."
Countries are jointly planning and constructing energy infrastructure. One important example is the ADB-supported Turkmenistan–Uzbekistan–Tajikistan–Afghanistan–Pakistan (TUTAP) power transmission program. Under this program, Uzbekistan and Tajikistan are already providing power to Afghanistan and this will be augmented by large exports from Turkmenistan soon.
Another example is the Turkmenistan–Afghanistan–Pakistan–India (TAPI) gas pipeline where ADB is providing transaction advisory services. ADB helped establish the project company with Turkmenistan Gas as the consortium leader, and has supported the TAPI stakeholders finalize and sign a Shareholder Agreement in December 2015 and an Investment Agreement in April this year. The project is now moving to the detailed design stage.
Finally, CAREC has provided knowledge and capacity building. Besides investments through projects, CAREC has contributed to capacity building and knowledge generation and sharing across CAREC countries. The CAREC Institute is spearheading this effort and after much negotiation, we are now preparing for signing and ratification of the intergovernmental agreement providing legal identity and ensuring the effectiveness and sustainability of the Institute.
Changing economic conditions and new challenges
There is no doubt CAREC has made a valuable contribution to the region’s development. However, whether CAREC can continue playing an effective role in future will depend on how it adapts to changing economic and development conditions in the region and beyond. In this connection, I am pleased to note we have completed a Mid-Term Review of CAREC’s existing strategy, CAREC 2020, and there is a proposal to develop a new long-term CAREC strategy.
There are many important developments in the region and beyond that will shape and provide the context for CAREC’s future role. Let me briefly highlight three of them.
First, the changing economic conditions in the region. Several CAREC countries are suffering from lower oil and commodity prices and falling labor remittances. CAREC countries are also facing economic challenges caused by economic slowdowns in the region’s trading partners.
This is reflected in much reduced growth in the region. The GDP of CAREC countries, excluding the People’s Republic of China (PRC), grew 9.1% annually for the 3 years prior to the 2008 financial crisis. In 2011 to 2015, average GDP growth fell to 4.5%. It is expected to be even lower in 2016 at 3.3%.
As a committed development partner, ADB is actively supporting. ADB provided countercyclical support to Kazakhstan. We have also provided policy based lending to help improve the business climate in the Kyrgyz Republic and Tajikistan, and to promote domestic resource mobilization in Georgia. ADB’s continued support to small and medium enterprises, infrastructure investment, and skills development will help boost longer term growth.
Since medium-term growth prospects are affected by uncertainties about prices for key regional exports, CAREC may need to consider selectively expanding its agenda beyond the core focus on regional infrastructure. Regional actions need to be identified to foster higher growth through economic diversification, modernizing technology in manufacturing and services, improving skills and human capital, and attracting more private investments.
The CAREC Mid-Term Review notes areas for expansion including agriculture, food security, information and communications technology, health and tourism amongst others. Economic corridors, such as the pilot Almaty-Bishkek corridor, provide promising multi-sector platforms.
"I believe CAREC should build on its achievements and institutional strengths in fostering regional cooperation. Regional infrastructure and trade facilitation will likely remain the core of the program but an expanded agenda and new approaches need to be considered. "
Expanding the CAREC agenda will also require CAREC to take more flexible and proactive approaches to its official institutional framework, or the way the program is organized.
Second, there are new country-led and multilateral initiatives in the region. These will potentially expand the resource envelope for infrastructure. New multilateral banks like the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB) have started to operate. Country-led initiatives include the Silk Road Fund of the PRC and the Quality Infrastructure Initiative of Japan.
There are also country-led mega frameworks in the region, such as Shanghai Cooperation Organization (SCO), Eurasian Economic Union, and the One Belt One Road.
I am pleased to note that ADB is already engaging with new partners. For example, ADB and AIIB agreed in June to co-finance a CAREC transport project in Pakistan. The project funds a remaining 64 km section of the M-4 National Motorway. The project has strategic value to Pakistan and CAREC as it supports north-south connectivity.
Third, we need to consider the changing global development agenda that reflects the increasing importance of sustainable growth and climate actions. In September 2015, in New York, leaders adopted the Sustainable Development Goals. This was followed by the COP21 Paris Agreement in late 2015.
Recognizing the threat posed by climate change, 8 CAREC countries have submitted their Intended Nationally Determined Contributions. Most have targeted greenhouse gas (GHG) emission reductions of 10–35% by 2030. Several countries have incorporated the targets and climate adaption and mitigation approaches into their national development strategies and plans. CAREC can complement these efforts by considering environment and climate-related regional public goods in its future agenda.
Indeed, when I have visited CAREC member countries I was impressed by the commitment of leaders to climate actions. ADB has been supporting important projects in the areas of solar and hydro energy as well as sustainable transportation such as railway.
Last September ADB announced it will double its annual financial support to member countries for climate actions from the current $3 billion to $6 billion by 2020. Out of the $6 billion, $4 billion will be for mitigation including renewable energy, energy efficiency and sustainable transport. $2 billion will be for adaptation through more resilient infrastructure, climate-smart agriculture and others.
As a part of ADB’s doubling of climate finance we are keen to help CAREC countries to strengthen their climate actions.
New strategic directions
This afternoon, we will have the opportunity during the Ministerial Retreat to start discussing strategic directions for the CAREC Program in the changing environment I have outlined.
I believe CAREC should build on its achievements and institutional strengths in fostering regional cooperation. Regional infrastructure and trade facilitation will likely remain the core of the program but an expanded agenda and new approaches need to be considered.
With our experience promoting regional cooperation in other parts of Asia and Pacific, ADB is well placed to support CAREC in any new directions the program identifies. ADB will increase its financial assistance to CAREC with its strengthened balance sheet and expanded resources. ADB is ready to help in potential areas for expansion of the CAREC agenda, such as environment, health and education. ADB will also help CAREC’s strategic evolution by strengthening partnerships and coordination with other development partners.
After 15 years of being good neighbors and good partners, there is more that connects us and unites us. As the CAREC secretariat, ADB will remain committed to promoting cooperation for development.
I am fully convinced that together we can overcome any challenges and stride towards a better life for our people.