The results of the official visit of RF President V.Putin to Tajikistan that took place on October 4-5 suggest there is a probability of increased tension in the Central Asian region within the nearest 9-12 months.
Moscow’s attention to Tajikistan should be discussed in the context of building up its presence in Central Asia (CA) within the framework of the attempt to create Eurasian geopolitical project. This project is expected to restore Kremlin’s geopolitical influence on the post-Soviet space under new political and economic conditions.
Availability of sufficient energy resources in the region allows some countries to claim to attempt conducting their own foreign policy. Russia’s loss of control over these countries will pose direct threat to both RF’s geopolitical model in the region and its monopoly/control over regular energy carriers transportation routes.
Today, Russia has opportunities for exercising full-scale influence only in Kyrgyzstan and Tajikistan. However, one may say that Kazakhstan falls under the same influence because pro-Russia moods among local elites and their favouring preservation of Nazarbayev’s regime allows Moscow to overcome the country’s energy independence not least of all by means of involving Astana in the Customs Union. However, due to geographical location, economic potential and political regime Dushanbe still remains the most controlled Russia’s partner in the region helping to efficiently achieve its foreign policy objectives.
Regional Tactical Standpoint. Today, Moscow has faced the issues of developing its geopolitical projects on the territory of Central Asia. Key problems come from official Tashkent (Uzbekistan) which had already suspended its membership in EurAsEu, as well as in CSTO – in 1999 and 2012. As for the latter, Tashkent has not ratified a single significant document. According to our estimations, Uzbekistan’s distancing from CSTO is first of all related to expectations of profitable proposals regarding hosting US military bases on the country’s territory, as well as to the attempts to avoid entering Russia’s geopolitical arena and preserve opportunities for foreign policy manoeuvres. Moreover, Karimov’s regime has been lately under pressure, in particular in respect to businesses related to his daughter Gulnara, and opposition forces in exile declare their plans to organize civil disobedience in Uzbekistan aimed at overthrowing the antidemocratic regime. Similar situation forces Karimov to manoeuvre between Washington and Moscow and remain neutral, at the same time staying interesting and promising for both parties.
Probability of republicans rising to power after the next presidential election in the US will enhance American present in the region in future – especially in the context of conflict with Iran. Moreover, Uzbekistan is the most favourable base for the localization of a part of military forces removed from the territory of Afghanistan in case immediate return and deployment in this country is needed. The US is also expected to relocate to Uzbekistan a part of the armed forces remaining after withdrawing the coalition’s forces in Afghanistan in 2014.
Thus, Russia may face enhanced competition in CA on the part of the US and China within a short-term period. Such changes in the foreign policy situation require more drastic actions from Kremlin aimed at strengthening its influence in the region.
Military and Political Standpoint. According to the signed agreements, Russia has prolonged its military presence in Tajikistan for 30 years. Ministers of Defence signed a treaty replacing the previous one that came into force in May of 1993 and is going to terminate in 2014. Duration of the new treaty is 49 years.
The treaty is of great military and political importance since it stipulates that Russia will keep under control one of the largest exterritorial military groups in Central Asia. Firstly, this will allow Moscow to control security within the region after complete withdrawal of coalition’s military forces from Afghanistan. We believe that withdrawal of ISAF troops from Afghanistan will trigger rise of radical forces on the borders of Central Asian republics and will pose a threat to stability of these countries’ regimes. This process will be probably accompanied by increasing drug trafficking from this country. Therefore, Kremlin in its strategic model sees Tajikistan first of all as a border containing radical Islamic forces from the territory of Afghanistan. Secondly, 2013 will see presidential election in the country participation in which of the current president E.Rachmon may raise a question about legitimacy of the procedure and destabilize the situation in the country according to the “colour revolution” scenario. Thirdly, this will give Moscow a chance to achieve parity under conditions of probable deployment of American military bases on the territory of Uzbekistan.
Moreover, 201 Russian Military Base (RMB) and financial aid in the amount of USD 5 million will allow more effective prevention of drug trafficking towards Russia in which – as of today – some representatives of Tajikistan army and border troops are involved which is proved by recent event in Gorno-Badakhshan (GBAR). The same events showed that Tadjik authorities in fact have no control over about 45% of their territory, and there is a probability of another round of separatism and extremism in Gorno-Badakhshan. Back in 2010, confrontation tendencies here were enhanced after the breach of agreement between official Dushanbe and the groups controlling the Rasht Valley which the authorities failed to take under control. According to the operational report prepared by Da Vinci AG analytic group in February 2011, Tajikistan is the most vulnerable state in Central Asia for the implementation of “Arab spring” scenario. Therefore, Russian military presence will guarantee security to E.Rachmon’s regime and enhance stability of the regime and domestic policy situation in the country. This is also important considering the personal conflict between E.Rachmon and I.Karimov which, in our opinion, may turn into a military conflict in case of implementation of water and energy supply projects by Tajikistan which may cause water deficiency within the republic. Therefore, RMB 201 may influence the decision-making process in Uzbekistan regarding planning of acts of violence against Dushanbe.
All this strengthens RF’s position in the region, ensures stable implementation of integration projects for it, as well as enhances the role of CSTO as regional security organization.
Situation Forecast. We believe that Moscow’s medium-term tactics lies in the use of contradictions of Dushanbe for the purpose of strengthening its position in the region. Moscow will seek to keep influence on Tajikistan by means of providing military assistance, security guarantees and economic support in the form of liberalization of labour migration for Tadjiks and abolition of export duties on light oils. Plans to increase labour migration flow from Tajikistan aimed at reducing tension in this country caused by unemployment will probably be accompanied by tightening of migration policy in relation to migrant workers – including from Ukraine and Moldova. Introduction of new migration rules is quite advantageous for RF. 75% of migrants from Central Asia have families on their native land and send them money. Thus, by employing foreigners on its own territory Moscow reduces tension in Central Asian countries where male unemployment can stimulate growth of extremism. Moreover, 99% of them go to Russia seeking some earnings and do not plan on staying on its territory unlike representatives of European post-Soviet republics.
According to our estimations, Kremlin is interested in the creation of confrontation between Uzbekistan and Tajikistan (and possibly Kyrgyzstan). For this purpose, Moscow takes measures to support implementation of infrastructure projects which pose threat to Uzbekistan’s security. It concerns construction of Rogun HPS and Kambar-Atin HPS-1. In case construction of dams on these two sites is completed Tajikistan and Kyrgyzstan will get an opportunity to regulate flows of trans-border rivers Naryn in Kirgizia and Vahksh in Tajikistan and Uzbekistan, thus creating water deficiency there. Receiving control over water resources by means of investment projects with the participation of Russian companies RusHydro and RAO UES will allow Kremlin to get bargaining chips in the process of negotiations with Uzbekistan and offset its regional influence as a supplier of energy resources.
We suppose that there is quite little probability of implementation of this project by Moscow. Such implementation is rather risky considering the fact that the dam which is going to become the world’s largest is situated at the point of tectonic fault and high seismic activity. In view of the aforesaid, investments in the amount of about USD 3 billion managed by Russian companies are imposed to high financial and reputation risks and seem to be unreasoned from the economic point of view. However, results of V.Putin’s visit in October show that Russia for the first time got involved in Tadjik-Kyrgyz water-energy project in which it had been persistently staying neutral for several years. We believe that this is a part of a multi-move game in which Moscow provokes escalation of tension between Dushanbe and Tashkent and between Tashkent and Bishkek, and then will become mediator in the regulation process taking up issues of peaceful regulation of regional conflicts.
Moreover, as 2014 is approaching I.Karimov’s regime will seek foreign support and security guarantees on its southern borders. Despite the fact that the length of borders with Afghanistan for Uzbekistan is significantly less than for Tajikistan, infiltration of radical Islam into its territory, intrusion of armed troops into its territory from Afghanistan aimed at destabilization of the situation within the country and spread of influence of Uzbek sub-ethnic groups and clans of Afghanistan on Uzbekistan are quite likely. At the same time, Tashkent has no resources to maintain its positions on the southern border with Afghanistan and 100% of control over its own part of Ferghana Valley where chances are high that the activity will revive, nor to prevent revitalization of opposition forces. In view of the above, Moscow probably hopes that under such conditions Tashkent will not be able to show active resistance to Tajikistan and Kyrgyzstan and will agree to trade-off alternatives of settling the issues, including within the framework of pro-Russian geopolitical projects.
However, we believe that the situation is not likely to take such turn. Moscow has 9-12 more months until the situation with the construction of hydro-energy sites brings Dushanbe to understanding of the fact that Kremlin uses it in its geopolitical strategy. There was a similar situation in the past when Russian companies refused to complete the construction of the very same Rogun HPS which caused cooling down of relations with Tajikistan. This may result in significant strengthening of China’s positions due to investment infusion in Tajikistan and Uzbekistan and construction of transport communications in Ferghana Valley.
In our opinion, Russia’s policy in the region will result in the fact that Tashkent will use a manoeuvre aimed at imitation of return under Russia’s wing. In such case, Kremlin will face an issue of fulfilling obligations to Dushanbe because the strategic plan suggests that the importance of Uzbekistan for Kremlin is more significant. Such games will hardly bring a happy end to Moscow because weakness of national economies of most Central Asian countries facilitates growth of radicalism and reduction of stability, and variety of tribes and clans complicates consolidation of power and implementation of efficient domestic policy which allows to predict further development of the situation in some of them according to Libyan scenario. Moreover, RF uses contradictions of CA countries under conditions of non-conflict infiltration of PRC into this region. Therefore, Russia’s influence in the region may be significantly reduced in case of change of power in one of the countries: Uzbekistan or Tajikistan which will strengthen positions of China and the US.
Turkmenistan, the heart of the Silk Road
Over 140 years have passed since Ferdinand von Richthofen, a German geologist, geographer and traveler and the president of the Berlin Geographical Society, coined the term Silk Road. Several more decades had passed before scholars in different countries became seriously interested in this phenomenon of the antique and medieval world and began to study specific routes of caravan trade where Turkmen land had an important place. The Silk Road era, which lasted for more than 15 centuries, has left thousands of monuments and landmarks along the entire route from the Mediterranean to the Far East. Many of them are located on the territory of Turkmenistan.
In the modern era, the legendary route is being restored in a new quality, carrying the idea of revitalizing and strengthening trade, economic, humanitarian, and cultural ties between states and peoples. In his book, “Turkmenistan, the Heart of the Silk Road,” Turkmenistan President Gurbanguly Berdymukhamedov, citing facts of national history, ancient tales and legends, as well as events and developments from the country’s modern life, notes that a fundamental role in the evolution and active use of the Silk Road, each of its branches being on the UNESCO List of World Heritage Sites, belongs to, among others, the Turkmen people.
Thus, as our state carries out major transport projects of the century, a modern history is being written and the idea of restoring the Silk Road – the heart of which is independent and neutral Turkmenistan – is being revisited.
The Kazakhstan-Turkmenistan-Iran transnational railway line that has been put into operation can carry up to 10-12 million tons of cargo and makes it possible to connect to transport infrastructure in the east and south, gaining access to dynamically developing markets. Turkmenistan believes it is essential to focus efforts on ensuring that the opportunities for Central Asian and Caspian states arising in connection with these major transit projects be used to the maximum degree possible.
Convenient and safe international corridors using rail, motor, air, and water transport ensure the sustainable development of the entire region, foster neighborly relations between nations, strengthen cooperation, expand the volumes of trade turnover and help address a number of social issues. As a strategic goal defining the contours of a new, large-scale format of cooperation on the continent, they help create wide-ranging and promising geoeconomic configurations. In this context, it is important to note that an international sea port in the city of Turkmenbashi is due to be put into operation in the very near future.
The state invests heavily in modernizing the material and technical base of the transport sector and improving management through modern technology. High priority is given to developing sea and river transport infrastructure. Active work is under way to improve passenger and cargo transportation, develop ports and port facilities, and streamline state oversight over the safety of shipping and navigation.
Central and South Asia is a space for active international cooperation. Ancient trade routes passed across these territories for centuries, bringing Asia and Europe closer together. At present, countries in these regions play an important role in expanding global economic partnership. The implementation of projects in these areas opens up great prospects for the optimization of transport, energy and cultural ties in the Eurasian space. Therefore, as Turkmenistan President Gurbanguly Berdymukhamedov noted, our region is emerging as a major link in the formation of a new trade and economic partnership model on the continent, which, in turn, opens up opportunities for creating a platform for more wide-ranging cooperation. This is a vivid example of deeply innovative thinking in the global geoeconomic configuration and a vision of strategic perspectives for its development.
First published in our partner International Affairs
Kazakhstan Needs Robust Reforms to Boost Productivity and Growth
Kazakhstan needs to boost productivity to reverse the slowdown in economic growth, says a new World Bank report released today.
The new Country Economic Memorandum “Kazakhstan: Reversing the Productivity Stagnation”, underlines that increasing productivity and growth will require robust reforms to strengthen the private sector, including strengthening the competitiveness of companies, reducing the role of the state in the economy, strengthening the rule of law, and fighting corruption.
In the 2000s, Kazakhstan had experienced exceptional economic growth — supported by rising oil and gas prices, rapid growth of domestic demand and soaring investments. During this time poverty and inequality declined significantly. However, since the global economic downturn of 2008, Kazakhstan’s growth has slowed markedly from over 10 percent in 2000-07 down to 4 percent in 2008-17.
“Kazakhstan’s productivity growth has witnessed a significant slowdown in recent years, curbing the rise of incomes and limiting welfare gains for most of the population” said Julio Revilla, World Bank Lead Economist for Central Asia. “This calls for ambitious reforms to strengthen the private sector as they can lead to greater overall productivity in the economy through diversification and competitiveness.”
It is projected that, without higher productivity, Kazakhstan will face continuously declining rates of income per capita. To achieve its goal of entering the top-30 global economies by 2050, Kazakhstan would need to invest over 60 percent of its GDP – an unrealistic level – to compensate for lack of productivity improvements.
“The productivity agenda has become even more important as Kazakhstan is now one of the top-30 countries in the Doing Business rankings. It is high time for the country to concentrate on productivity – which can take economic growth in Kazakhstan to the next level,” said Francis Ato Brown, World Bank Country Manager for Kazakhstan.
The report calls for ambitious reforms in three main areas:
Creating a level playing field for all firms. This means reforming long-standing structures that protect state-owned and other well-connected firms, and handicap new ones. The fact that older, less productive firms are able to stay in business shows that the process of creative destruction—whereby less productive firms exit the market, making room for newer and more productive ones—is not happening.
Strengthening the rule of law and dealing with corruption more aggressively. The judicial system is seen as one of the biggest barriers to an efficient and highly productive economic system. The World Bank Enterprise Survey data identify corruption as the top obstacle for private businesses in Kazakhstan across all sectors. The government should consider reforming public procurement procedures, as well as revising the burdensome and costly trading procedures, and border administration, to improve transparency.
Introducing structural changes in the economy. This is critical to boost private investment and reduce a disproportionately large role of the state in the economy. The strong presence of state-owned enterprises (SOEs) results in inefficient prices, quota-based production, and a number of other market distortions that serve to suppress the domestic private sector. Reducing the role of the state requires addressing private-sector distortions and eliminating the favorable treatment of SOEs.
A Country Economic Memorandum is an analytical report by the World Bank, which provides a comprehensive analysis of a country’s economic developments, prospects, and policy agenda, identifying policy reforms for key economic sectors.
Great game in Central Asia: Rivalry persists
On October 19, Russia’s President Vladimir Putin visited Uzbekistan. According to media reports, Moscow and Tashkent focused on “prospects for further strategic partnership,” cooperation in military technology, and economic ties between the two countries. Moscow is investing billions of dollars and is planning to open more branches of top Russian universities in Uzbekistan. On the same days, October 17-19, Tashkent played host to the VIII Central Asian Trade Forum, organized by the United States Agency for International Development (USAID). As they spoke at the event, the US representatives announced Washington’s interest in providing duty-free access to its domestic market for several thousand products from Central Asian states. This approach reflects the policy of bilateral cooperation which the two parties agreed upon during a visit of the President of Uzbekistan Shavkat Mirziyoyev to the United States in May this year, which resulted in $ 4.8 billion contracts.
Central Asia has been a zone of geopolitical rivalry between the world’s top players for centuries. Even when the main part of this territory was part of the USSR, the USA, China and other countries tried to influence the Soviet “soft underbelly”. After 1991, the region quickly moved to the sidelines of the military-strategic interests of Moscow, Beijing and Washington . At present, the three powers are concerned about the threat of Islamic extremism and an increase in drug trafficking in the region. While sharing the same concerns, the parties interpret the causes of these threats in different ways. In general, regional competition of external powers is moderate, being visible mainly in the economic sphere. For now, two integration projects are developing at fast pace in Central Asia – the Eurasian Economic Union (EEU), promoted by the Russian Federation, whose members are Kazakhstan and Kyrgyzstan, and the Chinese Silk Road Economic Belt (SREB), targeted at all Central Asian countries. In the mid-2010s, the United States unveiled its conceptual vision of the future of the region — the New Silk Road Initiative, which, however, has not yet seen any substantial progress.
At present, countries of the region are pursuing the policy of building secular national states. Searches for national identity in the values of Islam or Pan-Turkism is a thing of the past. Meanwhile, for a part of the population, religious principles still prevail over the national and civil ones. Also, there are a number of other challenges to the stability and security of the region. Russian International Affairs Council experts say that political institutions are weak, the economy is poorly diversified, heavily corrupt, hinging largely on “shadow” schemes and smuggling. Social and economic problems, disputes over the distribution of water resources, and inter-religious and inter-ethnic conflicts are acute. On top of all this comes the rapidly aggravating problem of uneven economic development of countries. The main external threats are proximity to Afghanistan and the Middle East with a high degree of border penetrability.
In general, the ruling circles of the states of the region are trying to maintain power and property and evade serious socio-economic upheavals. The financial and economic interests of the elite are largely oriented at the West. However, the current challenges to domestic and regional stability, as well as the nature of the existing regimes, are what scares Western investors the most. As a result, countries of Central Asia are drifting between globalization and regionalization, between economic projects that benefit primarily the elites themselves, and the need to guarantee an increase in the living standards of wide sections of society, “between efforts to preserve a niche in the “old” world economy and secure niches in the “new” one”.
Over the past few years, Russia has been promoting its interests in the region within the framework of the CSTO, the EAEU and the Customs Union. Until recently, the majority of projects with the participation of Russian investors were concentrated in the oil and gas sector. Meanwhile, representatives of local elites and business communities would prefer to see Russian investments in the energy sector, in the creation of cross-border “transit transport routes.” There is a high demand for projects that would develop interstate economic cooperation within the framework of the EEU, and projects whose products would be oriented at markets beyond the post-Soviet space. These areas include the military industry, the mining sector, and the supply of agricultural products. At the same time, experts point out “excessive” “coordination and regulation of economic relations” within Russian regional initiatives.
Nevertheless, Russia maintains a significant potential to secure its economic influence in the region. Most enterprises and agricultural facilities in Central Asia date back to the Soviet days and most of the infrastructure, railways and highways are focused on Russia. The Russian media are popular in the region, supporting the idea of stability and sovereignty. Until early 2010s, the “Soviet legacy” enabled the Russian Federation to remain a major economic partner for all the Central Asian countries. However, in recent years, Moscow has been losing its leading economic position to China, mainly, for lack of investment.
China’s rapidly growing economy requires more and more resources. Given that Central Asia is rich in oil, gas, minerals and cotton, Beijing has been trying to promote economic projects in the region since the early 2000s. At the end of 2017, trade turnover between China and countries of Central Asia reached $ 30 billion, whereas trade between Russia and the region was less than two thirds of this figure. China overtook Russia in trade with all countries in the region, except Kazakhstan. Now, China is pursuing multibillion-dollar projects in transport and pipeline infrastructure as part of the strategy of the Silk Road Economic Belt (SREB), and is increasing investment in industrial facilities and joint ventures. There are plans to build three railway corridors: between the Chinese port of Lianyungang and Kazakh Almaty, and two between the south of China and Central Asia. By the end of 2017, the Chinese investments in Central Asia had exceeded $ 100 billion. Investment plans until 2030 are estimated at several hundred billion dollars.
Meanwhile, according to most Western analysts, Russia and China have been pursuing a coordinated and well-balanced policy of extensive cooperation in Central Asia. China has been focusing on economic projects in the region, while Russia, besides the economic sphere, has taken the lead in ensuring military and anti-terrorism security and regional stability. According to Western estimates, Central Asia has been picked by Moscow and Beijing as number one site to practice strategic interaction, which can then be used in other parts of Eurasia. This cooperation hinges on an agreement reached by the Russian Federation and the People’s Republic of China at top level in 2015 on integration between the EAEU and the SREB. The economic role of the Shanghai Cooperation Organization is also expected to increase after Kyrgyzstan assumes the SCO presidency in 2019. Both countries are fully aware of the strategic mutual benefit from participation in these projects and neither pursues economic or regional security initiatives that could be detrimental to the other party.
In 2011, Washington launched the New Silk Road Strategy (NSR), which initially focused on the economic revival of Afghanistan through its integration into regional development projects. In autumn 2015, as the US Secretary of State, visited all five Central Asian countries in the course of his first tour, the Samarkand Declaration was adopted to promote the New Silk Road, which declared the widest possible range of areas of cooperation between the United States and countries of the region. Gradually, the United States began to shift from the still idealism-ridden policy of supporting the “development of democracy” in Central Asia towards a more pragmatic course, aimed at reducing the influence of the Russian Federation while simultaneously moderating the presence of China.
So far, the extent of the Trump administration’s interest in Central Asia is uncertain. It looks like the United States is ready to encourage local authorities to “soften” domestic policies, including on the expansion of international contacts, by boosting economic assistance and cementing ties between representatives of the business community. In particular, moves of this kind have been reported to come from the USA in the direction of Uzbekistan and Kazakhstan. USAID enjoys a significant influence on public associations in Kyrgyzstan, Kazakhstan and Uzbekistan. As for region-wide economic projects under the patronage of the United States, most of them are stalling, because they are made dependent, to this or that extent, on stabilization in Afghanistan.
Another important tool for strengthening the US positions in the region after 2001 is the promotion of a counter-terrorism agenda, a military presence, primarily in Afghanistan, and the development of military and defense ties with the Central Asian states. Preventing the spread of radical movements in Central Asia meets the interests of both Washington and all countries of the region.
In the meantime, the interests of Central Asian countries spread beyond the bounds of financial assistance and economic cooperation as they are unequivocally making it to understand that they are looking for new partners and security guarantors capable of balancing the United States, Russia and China.
This encourages countries of Central Asia to develop contacts with a whole range of external players that have noticeable interests in the region. The influence of the European Union in Central Asia decreased, after the promising projects of the previous decades fell through. EU experts argue that the Union lacks the resources to compete with Russia and China. Therefore, they call for “focusing on specific projects” that would contribute to raising the living standards across a wide section of society. As for China’s SREB initiative, the EU sees it as a significant destabilizer, given the insufficient involvement of local, particularly human, resources, and a dramatic increase in Central Asia’s political and debt dependence on Beijing. Therefore, the EU is seeking to “fit” “into the current situation with a view to influence further developments from within.”
Since 2012, Japan has been stepping up its political efforts in Central Asia. As he visited the region in 2015, Prime Minister Abe signed $ 27 billion agreements, including on cooperation in the fuel and energy sector, in infrastructure projects, and in measures to combat terrorism and extremism. While doing this, Japan reiterates its readiness to maintain extensive ties with other powers, including Russia, China and Turkey. The latter persists in its claims to play a leading role in Central Asia, nurturing ambitions to become the leader of the Turkic world. However, Ankara’s positions have suffered a blow in recent years. President Erdogan has faced a lot of criticism for not providing enough support for the Turkic communities in Russia and in the west of China.
Thus, the leading circles of the Central Asian countries are pursuing a “purely pragmatic” policy. Among the priorities are structural economic reforms, attracting more investments, primarily to the production sector and high-tech industries, and the development of “human capital.” As global players demonstrate renewed interest in the region, Central Asia has an option to pursue an increasingly varying and multi-vector policy. In spring this year, Uzbekistan and Kazakhstan made a bid to form a community of five Central Asian states without participation of external powers. At last, the transformation of Central Asia is taking place against the background of the arrival of a relatively new generation of leaders, fewer and fewer of whom see Moscow as a major historical partner. Given these conditions, Russia, if it wants to maintain its positions in Central Asia, ought to devise new approaches to regional policy. In our opinion, a strategy that should take center stage in Central Asia in the near future is one that would provide countries of the region with an economic cooperation agenda that does not require a clear geopolitical choice.
First published in our partner International Affairs
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