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The state and prospects of economic cooperation with Central and South Asian countries

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The foreign policy of Uzbekistan, which is aimed at rapprochement and strengthening good-neighborly, friendly and mutually beneficial relations with neighboring states, has created a solid foundation for the development of trade, economic and investment cooperation between the countries of Central Asia (CA).

The CA countries cover a market area of 75.3 million people. In 2020, the total GDP of the CA countries amounted to $291.1 billion and foreign trade turnover was $142.5 billion. 

Macroeconomic indicators of CA countries

CountriesPopulation (mln.)Foreign trade turnover (US doll. bln.)GDP (US doll. bln.)GDP per capita (US doll)
 2021201920202019202020192020
Kazakhstan18,996,185,0181,7169,898129056
Uzbekistan34,541,836,357,957,717241686
Turkmenistan*6,113,913,946,848,077248074
Kyrgyzstan6,66,95,78,57,713231290
Tajikistan9,34,54,68,37,9873834
Total75,3168,2145,5303,2291,1  

Source: Statistical departments of the CA countries, * knoema.ru / atlas (2019)

In recent years, the economies of the CA countries have had high growth rates in the range of 5-7% and even in the crisis year of 2020, the growth rates were negative only in Kazakhstan and Kyrgyzstan. According to the forecasts of the World Bank, the CA countries in 2021 will be able to restore the positive dynamics of GDP growth and increase the growth rates in 2022.

Dynamics of GDP growth rates of CA countries (in %)

 20172018201920202021 (**forecast)2022 (**forecast)
Kazakhstan4,14,14,5-2,62,53,5
Uzbekistan4,55,45,61,64,34,5
Turkmenistan*6,56,26,31,8
Kyrgyzstan4,53,84,5-8,63,84,5
Tajikistan7,17,37,54,53,55,5

Source: Statistical departments of the CA countries; * knoema.ru / atlas; ** World Bank forecast

Favorable conditions for mutual trade have been created between the CA countries within the framework of the following trade agreements:

– all CA countries (except for Turkmenistan) are parties of «Agreement on a free trade zone of the CIS» from 2011, which the participating countries do not apply import customs duties to each other;

– Kazakhstan, Kyrgyzstan and Tajikistan are members of the WTO, Uzbekistan is actively negotiating on accession to the WTO, Turkmenistan in 2020 received observer status in the WTO;

– Kazakhstan and Kyrgyzstan as members of the EAEU are in a common customs space;

– the CA countries also have bilateral agreements to create favorable conditions for mutual trade.

Although CA countries are open to international and regional trade, labor and capital movements at various levels, they have great potential for building closer partnerships and integrated interactions with each other.

 In 2020, the total trade turnover (in goods, excluding trade in services) between the CA countries amounted to $12.2 billion, the total foreign trade turnover – $145.5 billion.

Thus, the share of intraregional trade in the total foreign trade turnover of the CA countries amounted to 8.4%.

Mutual trade (in goods) between CA countries in 2020 (US doll. mln.)

CA countriesKazakhstanKyrgyzstanTajikistanTurkmenistanUzbekistanTotalShare of trade turnover with CA countries in total trade turnover
(in %)
Kazakhstan796,2791,4128,02916,54632,15,5
Kyrgyzstan794,137,311,8341,31184,521,0
Tajikistan909,736,87,8333,81288,128,3
Turkmenistan*145,98,012,2440,3606,44,5
Uzbekistan2856,3878,6360,6342,44437,913,3
Total4706,01719,61201,5490,04031,912149,0 

Source: Statistic offices of Kazakhstan and Kyrgyzstan. Central banks of Tajikistan and Uzbekistan. Data on Turkmenistan for 2019 according to trademap.org

Note: Numbers in calculations of trade turnover volumes of Central Asian countries may differ depending on chosen calculation method by countries’ statistic offices

At the same time, it should be noted that the participation of CA countries in mutual intraregional trade is different.

Thus, the share of Kazakhstan and Turkmenistan in the volume of trade between the CA countries, their total trade turnover is the lowest and amounts to 5.5% and 4.5% respectively. The participation of Tajikistan and Kyrgyzstan in intraregional trade is the highest at 28.3% and 21.0% respectively. Uzbekistan occupies an intermediate position with an indicator of 13.3%.

Foreign trade of Kazakhstan and Turkmenistan is less focused on the regional market due to the predominance of hydrocarbons in their exports, which are mainly supplied to non-CIS countries (European countries, China, Russia) and most of the imports also go to these countries.

Indicators of share distribution in total trade turnover of Central Asian countries by countries and regions in 2020

 Share (in %) of total trade of the country
CA countriesRussiaChinaEU
Tajikistan28,321,310,421,6
Kyrgyzstan21,027,613,823,8
Uzbekistan13,315,517,736,4
Kazakhstan5,521,418,136,8
Turkmenistan*4,55,165,710,0

Source: According to the data of statistic offices of CA countries,    

* Data on Turkmenistan for 2019 according to trademap.org

Despite the fact that the majority of the commodity exports of the CA countries are fossil natural resources, regional trade with each other to a much lesser extent than they sell them outside of the region.

In particular, in 2020, the share of gold in total exports of Tajikistan amounted to 58.1%, Kyrgyzstan – 50.2% and Uzbekistan – 38.3%, which is supplied to Switzerland or Great Britain. About 66% export of mineral products are supplied mainly to the countries of the European Union in the total export volume of Kazakhstan. The main share of Turkmenistan’s exports, almost 70-80% falls on China, where Turkmen natural gas is mainly exported.

In this regard, the share of mutual trade between CA countries will be much higher if their exports of raw materials (oil, gas and precious metals) to third countries are not taken into account.

At the same time, the CA countries have great prospects for increasing the volume of intraregional trade in finished products, which meets the interests of all countries in the region.

The creation by CA countries of regional value chains, including industrial and agricultural clusters, will contribute to an increase in the number of joint ventures for the production of finished products that can be exported to third countries.

Regional integration will help reduce the costs of producers and promote the production of products that are competitive on foreign markets. In addition, when the CA countries carrying out trade operations within the region, they have the shortest distances for the delivery of goods, which gives them advantages in saving on transport costs.

The interests of the CA countries also meet the joint creation of international transport corridors and international transport infrastructure in the region, which will help to reduce transport costs in the supply of export products from CA countries to world markets.

It should be noted that all the countries of the CA region are interested in increasing export volumes and diversifying their foreign trade, entering new foreign markets, as well as creating and using new transport routes.

Currently the main trade routes of the CA countries are laid in the northern direction, encouraging area of ​​economic cooperation is the southern direction, including South Asian countries, which geographically lies on Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan, India and Sri Lanka.

Economic cooperation potential between the Central and South Asian countries

Uzbekistan

The total volume of Uzbekistan’s foreign trade with the countries of South Asia in 2020 amounted to 1.38 billion dollars or 3.8% of the total foreign trade.

The commodity turnover of Uzbekistan with the countries of South Asia, the largest volume falls on Afghanistan – 56.2%, India – 32% and Pakistan – 8.9%. Trade with the Maldives and Nepal is insignificant, while there is practically no trade with Bhutan.

Foreign trade turnover (FTT) indicators of Uzbekistan with the countries of South Asia in 2020 (US doll. mln.)

Trade turnoverShare in total FTT (in %)ExportImport
Total, including:36 299,8100,015 127,721 171,5
Afghanistan776,92,2774,62,3
India442,61,219,6423,0
Pakistan123,30,398,524,8
Bangladesh37,90,122,315,6
Shri Lanka1,80,00,31,5
Overall1 382,83,8915,5467,3

Source: State statistics office of Uzbekistan

In the trade with Afghanistan, the main share (99.7%) is taken by the export of Uzbekistan, which makes Afghanistan a profitable trade and economic partner. The main share of Uzbekistan’s exports to Afghanistan is electricity (30% of exports), wheat flour and legumes (24.1%), as well as metallurgical products.

It is also planned to implement the investment project “Construction of a 500-kW power transmission line «Surkhan – Puli-Khumri» on the territory of Afghanistan. The length is 260 km and worth about $150 million, through loans from ADB and Uzbekistan will finance $45 million. This transmission line will allow connecting the power system of Afghanistan to the unified power system of Uzbekistan and Central Asia.

In November 2020, the President signed two important documents concerning Afghanistan – the Decree «On measures to further expand and strengthen economic cooperation with the Islamic Republic of Afghanistan» and the Decree «On measures to further develop the activities of special economic and small industrial zones in the Surkhandarya region and the city of Tashkent», which create new legal conditions for strengthening economic cooperation with Afghanistan.

The documents provide for the signing of an agreement on preferential trade between Uzbekistan and Afghanistan and bringing the annual volume of mutual trade to $2 billion by 2023.

For these purposes, a free trade zone «International Trade Center Termez» is being created on the territory of Termez with Afghanistan, with an appropriate logistics infrastructure and a special visa-free regime.

On February 2, 2021, a meeting of the trilateral working group was held in Tashkent with the participation of the government delegations of Uzbekistan, Pakistan and Afghanistan on the implementation of Mazar-i-Sharif – Kabul – Peshawar railway project. As a result of the meeting, a joint “Road Map” was signed for the construction of the Mazar-i-Sharif – Kabul – Peshawar railway.

The construction of this railway will significantly reduce the time and cost of transporting goods between the countries of South Asia and Europe through Central Asia.

This railway will provide access to the Pakistani seaports of Karachi, Qasem and Gwadar and will connect the South Asian railway system with the Central Asian and Eurasian railway systems and significantly increase the transit potential of Central Asia.

India ranks second in terms of Uzbekistan’s trade with the South Asian countries. At the same time, Uzbekistan’s export volumes lag significantly behind imports, which are mainly represented by pharmaceutical products in demand in Uzbekistan.

Uzbekistan’s exports to India mainly consist of textile products (13.6% share), base metals (8.4%), food products (5.8%) and etc.

Imports of Uzbekistan from India are growing mainly due to the growth of purchases of “pharmaceutical products”, the share of imports is 47%.

At the same time, investment cooperation in the pharmaceutical sector is successfully developing with India, joint ventures have been created on the territory of the «Andijan-Pharm FEZ». Branches of the Indian universities «Amity» in Tashkent and «Sharda» in Andijan were opened to train IT specialists.

In recent years, trade and economic cooperation of Uzbekistan with Pakistan has begun to develop actively, the volume of exports of finished and agricultural products has increased.

In the structure of Uzbekistan’s exports to Pakistan: food products make up 81%; textile products – 10.5%; services – 3.5%.

In the structure of imports from Pakistan: pharmaceutical products account for 37%; food products (potatoes, citrus fruits, rice, etc.) – 36%, transport services – 10%; chemical products – 4.5%.

Furthermore, Uzbekistan is interested in expanding cooperation with Pakistan in the transport sector and joint implementation of the above project for the construction of the «Mazari – Sharif – Kabul – Peshawar» railway line.

Kazakhstan

Foreign trade of Kazakhstan with the countries of South Asia mainly falls on Afghanistan, India, Pakistan, less on Bangladesh and Sri Lanka. In 2020, the volume of foreign trade amounted to more than $2.3 billion or 2.3% of Kazakhstan’s total foreign trade turnover.

Foreign trade turnover (FTT) indicators of Kazakhstan with the South Asian countries in 2020 (US doll. mln.)

 Trade turnover (TT)Share in total FTT (in %)Export  Import  
Total85 031,1100,046 949,738 081,4
India1865,41,91572,8292,6
Afghanistan401,80,4399,02,8
Bangladesh36,30,01,734,6
Pakistan27,10,01,925,1
Shri Lanka8,30,03,25,1
Overall2338,92,31978,6360,2

Source: National Statistics Bureau of Kazakhstan

At the same time, the largest volume of trade between Kazakhstan and the countries of South Asia falls on India – 1.9 billion dollars. (80% of trade with the countries of South Asia) and Afghanistan – 401.8 million dollars (17%).

Kazakhstan mainly exports oil (about 50% of the export volume), chemical elements and their compounds (ferroalloys, titanium, phosphorus), as well as silver in the form of powder to India.

Kazakhstan’s imports from India are represented by medical equipment, medicines, textiles, tea products, etc.

Kazakhstan is also interested in the development of the North-South transport corridor and the use of the Iranian port of Chabahar to increase trade with India and other countries of South Asia.

Kazakhstan is a major supplier of food products to Afghanistan, like grain and flour products.

Kyrgyzstan

Among the Central Asian countries, Kyrgyzstan has the lowest indicators of foreign trade with South Asian countries – $61 million or 1.0% of its foreign trade turnover, which is mainly (84%) represented by imports from India.

Foreign trade turnover (FTT) indicators of Kyrgyzstan with the South Asian countries in 2020 (US doll. mln.)

 Trade turnoverShare in total FTT (in %)Export  Import  
Total5648,6100,01964,53684,1
India48,60,96,841,8
Pakistan7,40,11,95,5
Bangladesh1,90,00,01,9
Shri Lanka1,60,00,01,6
Afghanistan1,50,01,30,2
Overall61,01,010,051,0

Source: National Statistics Committee of Kyrgyzstan

At the same time, Kyrgyzstan together with Tajikistan, is interested in the implementation of a project for the delivery of electricity from Central Asia to South Asia through the CASA-1000 (Central Asia – South Asia) transmission line. The project plans to supply annually from April to October 2 billion kWh of electricity from Kyrgyzstan and 3 billion kWh from Tajikistan to Afghanistan and Pakistan.

In February 2021, Kyrgyzstan planned to begin construction of power lines on its territory within the framework of this project.

It should be noted that the total cost of the CASA-1000 project is about $1 billion.

Tajikistan

The foreign trade turnover volume of Tajikistan with the South Asian countries amounted to 185.2 million dollars or 4.0% of its total turnover in 2020.

Tajikistan’s main trading partners are Afghanistan, Pakistan and India in South Asia.

Foreign trade turnover (FTT) indicators of Tajikistan with the South Asian countries in 2020 (US doll. mln.)

 Trade turnoverShare in total FTT (in %)Export  Import  
Total4 523,7100,01 174,43 349,3
Afghanistan98,12,297,90,2
Pakistan56,31,210,445,9
India24,30,50,124,2
Bangladesh6,30,14,22,1
Overall185,04,0112,672,4

Source: National bank of Tajikistan

Due to its geographical position, Tajikistan is interested in the development of alternative transport routes, including through the countries of South Asia, in particular, Afghanistan and Pakistan.

The shortest seaport for Tajikistan is the Pakistani port of Karachi (2.7 thousand km), while the distance to the Iranian seaport of Bandar Abbas is 3.4 thousand km.

Another important project for Tajikistan in South Asia is the CASA-1000 transmission line project to export electricity from Tajikistan and Kyrgyzstan to Afghanistan and Pakistan. Within the framework of the CASA-1000 project, Tajikistan plans to export 75 billion kWh of electricity within 15 years.

In 2021, Tajikistan plans to complete the laying of power lines on its territory within the framework of this project. Currently, Tajikistan annually exports to Afghanistan up to 1.5 billion kWh. electricity.

Turkmenistan

Turkmenistan is also actively developing trade and economic ties with the countries of South Asia. In 2019, the trade turnover amounted to $462.3 million or 3.4% of its total turnover. The main trading partners of Turkmenistan are Afghanistan, India and Pakistan among the countries of South Asia.

Foreign trade turnover (FTT) indicators of Turkmenistan with the South Asian countries in 2020 (US doll. mln.)

 Trade turnoverShare in total FTT (in %)Export  Import  
Total13849,8100,010826,13023,7
Afghanistan410,93,0410,00,9
India42,00,33,738,3
Pakistan9,40,16,72,7
Overall462,33,4420,441,9

Source: trademap.org

The main share (70%) of Turkmenistan’s exports to Afghanistan consists of mineral products (oil products and natural gas). In October 2020, the following agreements were signed between Turkmenistan and Afghanistan:

– Memorandum of Understanding between Turkmengaz and Afgan Gaz Enterprise on the creation and development of a natural gas market in Afghanistan;

– Agreement on the purchase of electricity by Afghanistan within the framework of the Turkmenistan-Afghanistan-Pakistan power transmission line (PTL) project.

An important project of Turkmenistan with the participation of South Asian countries is Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline with a capacity of 33 billion cubic meters of gas per year.

The consortium for the construction of TAPI includes the state concern Turkmengaz (owns a controlling stake), as well as Afghan, Pakistani and Indian gas companies.

Turkmenistan planned to complete the construction of the TAPI gas pipeline on its territory in 2020 and in 2021 to begin laying the pipeline in Afghanistan.

Prospects for economic cooperation with Central and South Asian countries.

The main trading partners of the CA countries among the South Asian countries are Afghanistan, India and Pakistan. At the same time, the most active trade and economic cooperation of the CA countries is with Afghanistan, due to the geographical proximity, as well as the great dependence of the Afghan domestic market on imports of food and industrial products.

The Central Asian countries are actively cooperating with India and Pakistan also within the framework of the SCO. In addition, India is negotiating a Free Trade Agreement with the EAEU, which includes Kazakhstan and Kyrgyzstan and with Uzbekistan to conclude a Preferential Trade Agreement.

At the same time, the increase in trade with Pakistan and India largely depends on the creation of reliable routes for the delivery of goods. The project for the construction of the Mazar-i-Sharif – Kabul – Peshawar railway occupies a special place and will significantly reduce transportation costs for delivery cargo between the countries of the region.

Thus, the main promising areas of cooperation between the countries of Central and South Asia are new transport corridors that provide access to the Central Asian countries to the southern seaports, cooperation in the energy sector (export of electricity), encouragement of mutual investments, as well as the expansion and diversification of foreign trade.

It should be noted that Afghanistan, which is a bridge between the two regions, will contribute to the further development of economic cooperation between the countries of Central and South Asia.

In this regard, the implementation of transport and energy projects on the territory of Afghanistan will create conditions to expand opportunities for building up trade, economic and investment ties, strengthening transport and communication interaction between the countries of Central and South Asia.

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Economy

Potash War: Double edged sword for Lithuania and Belarus

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As per the recent proclamation made by the Lithuanian government, the Belarusian potash will get banned across the country from February 1, 2022. How will this termination of potash transit affect the economies of Belarus and Lithuania?

***

Belaruskali’s potash fertilizers are very significant exports for the country as they are the vital source of foreign exchange earnings for the latter. According to the National Statistical Committee reports, in 2020, Belarus earned 2,410,311.5 thousand dollars by exporting potash fertilizers. This amounts to 8% of the total volume of Belarusian exports and about 4% of the country’s GDP (60.3 billion dollars). Lithuania plays a crucial role in Belarusian potash exports because the bulk of Belaruskali’s products are shipped through the port in Klaipeda, Lithuania. That’s why the Lithuanian government’s decision to refuse transit access to Belarusian potash from February 1, 2022, will hit the latter’s economy.

Losses will not affect Belaruskali:

Usually, Belarus receives 2-3 billion dollars from its potash exports, but Lithuania’s recent termination of the transit agreement will result in the loss of 80% in the expected receiving. This will eventually decrease the GDP growth by 1-2%. Moreover, Katerina Bornukova, academic director, BEROC(Kyiv), analyzed that the losses will be incurred by different domains simultaneously, ranging from the Chemical industry, wholesale trade, Belarusian railways etc.

Much depends on Russia’s position:

The vulnerable Belarusian position has made it turn their eyes towards Russia, Belarus’s last and ultimate saviour. Therefore, it has become quite crucial for the latter to search for other alternative routes for the transhipment of potash after the closing down of Klaipeda port of Lithuania. But contrary to it, Russia hasn’t made it stand clear on the matter and still refrains from taking anyone’s side openly. Moreover, Vladimir Putin stated that Russia would become an opportunist in international fertilizer trade and make money by taking advantage of the market conditions.

In addition, Putin also had a meeting with the CEO of Uralchem, Dmitry Mazepin, on January 13, but its conclusions are not revealed but it can be averred that if anything positive happens in their talk, it will add to the problem of Belarus. Uralchem holds 80% shares of Uralkali and is the biggest competitor of Belaruskali. Moreover, the current baffling of Russia between Lithuania and Belarus is a cause of concern for the latter because Russia has not made any announcement or an official statement of helping Minsk in getting out of the current crisis.

On the other hand, the market is getting flooded with several apprehensions by politically exposed people. Pavel Slyunkin, Analyst of the European Council on Foreign Relations, firmly believes that Belaruskali should now go for the northern Russian ports for potash exportation because all other ports are occupied in the region Uralkali. Depending on the future political scenario, it may get possible that an agreement is reached between Belarus and Russia, which will free some Russian ports specifically for Belarus only, costing millions of euros.  

In Counter reaction, Igor Udovitsky, owner of the BKT terminal, Klaipeda, has advised Minsk to file a lawsuit to prove the illegality of the termination. The decision of the Minsk arbitration council will be binding on all competing parties and courts, so Lithuania will need to restore transit access.

Do Belarus and Russia redirect Potash?

In August 2021, the head of the Belarusian Ministry of Transport, Alexei Avramenko, stated the readiness of Belarus to use the ports of the Leningrad region and Murmansk for the exportation of potash in the Asiatic region if, shortly, Lithuania refuses to provide transit access. The ban imposed on Belarus from February 1, 2022, has led it to seek Russian help, but still, Russia has not come out clearly on this matter. It hasn’t stated whether it will help Belarus or not? And if it happens then, such a reorientation will need time to rectify the problems associated with the transhipment. Moreover, some additional time will also be required to get done with all the legal aspects about how the export and transhipment will take place, keeping confidential the identity of the companies involved in these operations. The secrecy will protect the companies from any European and American attack, analysed by Sergey Kondratyev, Deputy Head of the Economics Department of the Institute of Energy and Finance Foundation.

 There are several hurdles too in this reorientation to take place. The distance increased from Klaipeda to Russian ports will also enhance the payment amount of the wagon’s operators for the transhipment, which will adversely affect the profit of Belarus from the sale of potash fertilizers. The distance to Ust-Luga is 55 times longer, to Murmansk – 3.3 times, said Vladimir Savchuk, Deputy Director-General of the Institute for Problems of Natural Monopolies (IPEM). Moreover, in Russia, there is a shortage of port facilities for the export of fertilizers, due to which Russian companies themselves use the ports of the Baltic countries. That’s why Belarus will need to purchase the slots booked by Russian companies in the Russian ports. Sergey Kondratyev added that this wouldn’t be a matter of expense for the Belaruskali because tens of millions of euros a year is not a very big figure for the company, keeping in my mind the scale of their business.

“Belaruskali and Uralkali may join hands again: Igor Udovitsky

However, the journey of Belaruskali from Belarus to Russian ports will not be an easy one; it will have to cross several odds like Uralkali and other counterparties. To attract buyers, Belaruskali will be expected to provide heavy discounts. That’s why there is a severe apprehension by Igor Udovitsky, a Lithuanian businessman, that Belaruskali will have to make “many compromises” with Uralkali, which may also result in the unification of the two shortly. Earlier, both have worked together but cut off the ties after the 2013’s scandal in which Uralkali reproached Belaruskali potash workers for dumping.

Time for experimentation

Moreover, Belarus can also go for different experimentations after the Lithuanian termination of potash transit, for ex: supplying potash fertilizers to China. The same thing also happened in 2020 when the Belarusian potash company supplied potash fertilizers to China via the Northern Sea Route, unlike the previous routes following Baltic ports and Suez Canal. Therefore, assumptions are hanging around that Belarus is again likely to supply potash to China through trains, which will increase transportation costs. But the hikes in potash fertilizer prices can easily bear the additional costs. Katerine Bornukova added that now everything rests on the availability of trains, which will not compensate the volumes supplied through Lithuanian Routes. Moreover, intelligent China is looking forward to take advantage of sanctions imposed and bargain heavily in signing a new contract with Belarus in the wake of the expiration of the previous one that ended last December.

Direct and indirect losses

Sergei Kondratyev has also drawn attention to the direct and indirect losses Belarus will face. Of course, direct losses are tens of millions of euros due to snatching of the transit access, but the leading cause of concern would be the indirect losses. The sanctions imposed by the EU and the termination of transit by Lithuania have worsened the condition significantly. The termination has left Belarus with Russia as the only option available for the transhipments of potash, due to which the latter missed the opportunity of demanding more attractive offers from Moscow. 

Indirect losses per year can reach 80-100 million euros which will act as a financial suppressor to the economy of Belarus. Furthermore, European Union sanctions have made Belarus tranship its export cargoes only through the ports of Russia. This is facilitated by the poor relations with Ukraine and the Baltic nations staunch support to the EU sanctions. Sergei Kondratyev also emphasized that the value of Russian ports has increased because that’s the only route left for the Belarusian potash export. The companies responsible for the operation of this route may demand more attractive conditions from the latter, considering their risks. 

Lithuania’s perspective

Apart from Belarus, Lithuania will also suffer badly with this termination. It will lose the status of a great transit power after the departure of Belaruskali, which it maintained even after a significant part of Russian cargoes in the 2000s. Moreover, the country is itself not sure whether the Belarusian potash will cease to be transported in the country after February 1, 2022, as the Lithuanian Transport Minister, Marius Skouodis, himself expressed his dilemma on the same. As per him, the effective ceasing can only be done after the sanctions imposed by the EU. Finally, the country’s bad relations with China will result in transhipment losses and confine it only to the domestic needs of the Lithuanian economy, which is very small.

The Central Bank of Lithuania has calculated losses

Amidst the sanctions issue, The Central Bank of Lithuania came up with an estimation that a halt in the Belarusian commodity flow will result in a 0.9% decrease the country’s GDP in three years.

The same opinion was shared by Swedbank Chief Economist Nerijus Mačiulis and Ione Kaländene, Head of the Research and Analysis Department of the Entrepreneurship Development Agency Versli Lietuva. Former believed that due to the loss of transit, gross domestic product growth in 2022 will be slower. But the slowdown in growth will be slight and amount to 0.2-0.3%. Therefore, the planned growth of the economy easily compensates for the short-term fall. He stated that loss would be shared by different state-funded institutions like the Latvian railways’ company, the port of Klaipeda and several other companies. Of course, the state budget will lose some of the income, but there will be no significant macroeconomic effect. 

And Lone Kalandene opined that although the volume of transportation of Belaruskali fertilizers in Lithuania is vast, the losses incurred will be easily compensated because the leading carrier companies are state-owned. This will result in a little more burden on the state budget but will shield the Lithuanian economy.

Klaipeda port will face difficulties.

Algis Latakas, the head of the port, held the view that the ceasing of the transit of Belarusian commodities would incur heavy damages for both the port companies and the port authority, which cannot be compensated quickly. That’s why he asks for an assistance to be provided to both port companies and port authorities.

Igor Udovitsky, a Lithuanian entrepreneur, also believed that the sudden termination of the transit access would result in billions of euros, direct loss to Lithuania as 1 million tons of potash transit passes through Lithuania and the port of Klaipeda every month. As per his calculations, the loss of the contract with Belaruskali will result in total damage of more than 1 billion euros. He also mentioned the calculated loss on his Facebook page. Until now, the port of Klaipeda has been the leader in cargo transhipment in the Baltic States and was among the top 5 most efficient ports in the Baltic basin. 

The status which Klaipeda achieved in the backdrop of the industrial crisis in Latvia and the shortage of cargo in the Eastern Baltic will become challenging to achieve again.

The head of the Association of Lithuanian Marine Loading Companies, Vaidotas Šilejka, also supported Mr Igor Udovitsky and expressed the irreplaceable position of Belarusian fertilizers for Klaipeda. According to him, the port will lose about 10 million tons of cargo per year which will undoubtedly shake the entire port of Klaipeda and the enterprises operating on its territory. On losing such a significant amount of cargo, port companies will need more than a year to reorient their activities as there are no alternatives available at the moment. Furthermore, the termination will also have wide-ranging implications in different domains and pose geopolitical challenges and changes in the global macroeconomic trends.

The audit and consulting company Ernst & Young also estimated that in 2019, due to the transhipment of Belarusian cargo in the port of Klaipeda, the country’s budget was replenished by 155 million euros (this is 1.4% of all revenues). At the end of 2019, 14.1 million tons of Belarusian cargo (30.5% of the total cargo turnover) were transhipped at the port, in 2020 – 15.6 million tons (32% of the total cargo turnover). In addition, the processing of Fertilizers of Belaruskali amounted to 25.5% of the annual transhipment in Klaipeda. According to preliminary reports of the Port Directorate, in 2021, commodity flows from Belarus accounted for about 30% of all cargo.

Latvian Railways are waiting for fines and reduced profits

 This political manoeuvring of the Baltic countries will cost Lithuania also dearly. Stopping the transit of Belaruskali will be a severe problem for Lithuanian Railways as well because it was a valuable customer of the latter. The company may lose more than 20% of the commodity flow.

At the end of 2021, Mantas Bartuška, who was the head of the Latvian Railways at that time, said that the company would lose 60 million euros of annual revenue and the entire logistics chain as a whole – more than 100 million euros.

Former Lithuanian Prime Minister and Chairman of the Democratic Party of the Seimas of Lithuania Saulius Skvernelis believes that the damage to the Lithuanian economy from the rupture of the contract for the transit of Belaruskali fertilizers through the territory of the republic may amount to “from one to several billion euros.” He also said that Lithuanian Railways would have to pay a fine of 600 million for breaking the contract with Belaruskali.

Commenting on Skvernelis’ statement, Sergey Kondratyev said: “600 million is a very, very large figure. There is a possibility that Lithuanian Railways will try to somehow protect itself from this fine by challenging it in court, for example, or by obtaining protection from the government.”

Suppose the problem persists longer for 2-4 years. In that case, Lithuanian Railways will have to make a severe reduction in the scale of its activities: lay off personnel, reduce investments, and perhaps even have to consider the conservation of certain sections of tracks that will not be in demand.

“We don’t know how far things can go. Therefore, for Lithuanian Railways, the effect of stopping transit may not be felt right here and now. Yes, there will be fewer cargoes, but the company has a margin of financial strength to hold out for a while. But on the horizon of 2-3 years, losses can be tens of millions of euros, if we are talking about profits, and hundreds of millions of euros if we are talking about revenue, taking into account not only Belaruskali, but in general all Belarusian transit, including imported cargo. This could be a very serious blow for Lithuanian Railways, after which it will probably be difficult for the company to recover or, at least, play in the same weight category,” Kondratyev said.

In general, the overwhelming majority of experts agree on one thing – the “transit war” will not bring victory to anyone, and ordinary people will become “victims” in the geopolitical confrontation of states.

The negative economic consequences of stopping transit are apparent both sides will suffer equally. It will equally affect both the economies, both private and public companies as well as both the business leaders and ordinary workers.

As a social scientist anybody can conclude that both will have to come on negotiating table to broom out the dust of distrust. Sooner they will do it, better would be for both. The popular former Prime Minster of India, Mr. Atal Bihari Vajpayee remarked, “You can change your friend but cannot change your neighbour, you can change your history but cannot change geography”

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Economy

2022: Rise of Economic Power of Small Medium Businesses across the World

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Why mirrors of the Wall: To fight obesity a life-sized mirror required, to uplift the national economy a simple calculator is a critical necessity. Only, right amounts in right columns, correctly totaled show a balanced picture. In the coming days, pandemic will become endemic; the same day, all over the world, nations will suddenly start announcing economic pandemic. Observe, lingering global economic chaos still masked hiding a troubled face.  As a proof, observe the absence of bold open economic strategies or real action plans.

Why lead, follow or get out of the way: Our hyper-digitized world has now openly exposed; meritocracy-centric and mediocrity-driven nations. In this global race, no nations are the same; but rules of engagement on productivity, performance and profitability and entrepreneurial behaviors are almost identical. If economic survival to save nations is critical, still why in most nations the tasks of economic development mandated to teams critically lacking the required entrepreneurial and job creator mindsets. Nations with mastery on national mobilization of entrepreneurialism will lead; others may follow or get out of the way.

Why the two wheels: What will it take for nations to immediately start upskilling their front line economic development teams on a fast track basis. How can they create real SME growth, teach the teams on real tactical battlefields to wrestle, and harness real entrepreneurialism. Otherwise, repeating already broken models under crypto-illusions speaks volume on core competency. A great future is unfolding for job seeker and job creator minds must come together as two wheels of the same cart on national economic development.

Why the wrong building: Study, why are ‘population-rich-nations’ growing in economic prosperity much faster than ‘knowledge rich nations’?  Why, if you bifurcate ‘developed nations’ and ‘emerging-nations’ the emerging nations are advancing much faster. Now, when you apply a basic calculator, the ‘SME of any nation’ in the world will save the national economies but not the ‘big-business of the nation’. Study more on Google, discover the reasons, and acquire your own knowledge on such new affairs. Most importantly, if these topics still not openly discussed in your surroundings you are already in the wrong building.

Why the triangulation: To triangulate, the mastery of ‘national mobilization of entrepreneurialism’ with national SME verticals and exportability will outline the blueprints to save national economies.  How will the rise of the small medium business economy not only create local grassroots prosperity but also make national citizenry happy and stable.

Why the needed adjustments: Understanding of local economic landscape; traditionally, despite being a small tax contributor, big business is allowed to stomp all over its own government, while the SME sector, the largest tax contributor of any nation, is crushed and neglected. Technology is changing this fast, SME of the world now have the tools once only available to large empires, global access reserved for large scale maneuvers now a new digitized world of micro-trade, micro-manufacturer and micro-exports will create a new tidal wave of global commerce.

Why the absence of calculator: What is stopping any political leadership to declare national mobilization of entrepreneurialism and identify IK to 1000K SME with USD$1 million to USD$10 million in annual turnover, on digital platforms of upskilling exporters and reskilling manufacturers and double or quadruple their growth in 1-2 years. Is it the absence of a calculator, domination of job seekers and non-entrepreneurial mindsets, or hidden fears of big business not allowing such massive uplift? The near future calls for digitized economies and upskilled citizenry, as basic perquisites for any functioning nation.

Why fears of the pie: Hence, the tremors in the global boardrooms and still little or no response on uplifting the tides of SME in various corresponding verticals around the world, for fears of upsetting the top leaders. Ask the big forbidden questions; why will super big players ever allow the emergence of many millions sleek, technologically advanced and global-age skilled SME to grow to only chip away their own power play and half of their pie? It may be true in some regions, but there are grassroots benefits in such advancements provided there are right mindsets and matching vision of the nation.

Why the two new forces: Hence, there exists the low-level mediocre SME economic development across the world, where lip service fills the gaps and academic studies create colorful charts and circles to point confusion and trade groups comply to remain in deep silence. The SME of the world will rise in economic power, across the world as a new world dawns. The power is already hidden in two unstoppable forces; first the technology and second the global connectivity of opinions and knowledge. Both combined now allows some 500 million SME to organize and billions displaced rejecting cubical slavery drawn into out the box entrepreneurialism. It is the easiest time across the world to dance on entrepreneurial platforms.

Why history repeats: On the course of history, no other experiment of human journey is as successful as that of Americans and how when some 100K entrepreneurs carved the image-supremacy of entrepreneurialism to last well over a century. During the same period in Europe and Asia followers of such out of the box thinkers were not only rejected by society, but also jailed as a liability to society. Nations must identify and create an ‘umbrella of entrepreneurialism’ to preserve and respect the drivers and proponents of such intellectualism and avoid such notions caught in fakery. Today Asia alone has created 500 million new entrepreneurs during the last decade. Ignoring this by any nation in the world  will simply sink them.

Why the alpha dreamers: The five billion connected alpha dreamers have learned new lessons during the last 500 days; they witnessed the handling of pandemic and are now ready to study the unfolding of global economic pandemic. They realize the serious limitations of old style administrations, the inequalities, the injustice and lack of skills to cope with futurism. Covidians, the survivors of the pandemic, now vote in some 100 national elections scheduled over the next 500 days. A new way of thinking is emerging. Every day the global news increasingly focused on self-inflicted disasters and absence of corrective new measures to advance for better grassroots prosperity.

Why the next elections: Any naivety on ignoring this post pandemic metamorphism will backfire during next national elections. The national public opinion has now turned into global opinion; the populace of one country supporting the populace of another country for being under influences of the populace in a third or fourth country. Last decade our local streets molded public opinion; today global streets are doing just that. Deeply study how five billion connected slowly are forming the largest mindshare ever assembled. How all this does translates to local/global issues and what level of expertise needed to tackle bigger issues.

Why the soft power assets: The biggest losses of the nations of today are not at all their accumulated debts but continuously having greater losses of missed opportunities on the global stage. The lack of inability to recognize the soft power of a nation today is way above just the notion of culture, politics and foreign policy; it is far more extended and about nation-building, upskilling citizenry and pursuing common good.

Why broken systems: When tax laws are universally broken,universally criticized but universally remain unchanged; when there is no single supreme power left as all deemed declared useless, therefore, this calls for a major change but not from the very top rather grows from the very bottom. When economic progress remains as number one priority, why is it that only job seekers drive such economic development programs while job creator mindsets are critically ignored? Bringing both mindsets closer as a mandated agenda will bring hidden magic to the goals.

Why the deep silence: Quick test on your local economic resilience: right now, what parts of such narratives are your local governments openly engaging and deploying?  What types and styles of small medium business mobilization are on the go?  What level of entrepreneurialism drives ever created under what agenda?  What is happening to upskilling and reskilling including women entrepreneurial drives? What level of authoritative analysis on the table to upskill current economic development teams?  If most of these issues are often not new funding dependent but mobilization hungry and execution starved, why are economic development teams so scared? Is your local economy prospering? Maybe you are already far ahead. Study on Google how Expothon is gaining global attention and tabling Cabinet Level workshops and virtual events on revival of the SME power as an immediately deployable strategy to save and uplift national economies. 

Why fears of facing clarity: Is this why economic development teams are so afraid?  Will such ideas alter government agencies and their mandates in the future? Is this how Meritocracy will drive out Bureaucracies? Is this where the new future of economic prosperity hidden? Is this how we will advance to catch up with lost time and opportunities?  Is this how nations will finally optimize already hidden talents in their national trade groups, chambers and governments to full capacity? Is this how we will eventually open new bold discussions on distribution of right intellectualism to fit the right needs of humankind?

Suddenly, how far has our world moved on; bandaged, stitched and altered in thinking, psyche damaged but still aware of common sense. Our understanding of humanity is perhaps now in search of common good. To liberate itself from strangle of old thinking, the SME economic development world urgently needs major adjustments to bring balance between job seeker mindsets with job creator mindsets. Start immediately with a quick test across the economic development departments and measure such imbalances. Study more on Google. The rest is easy.

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Economy

Can e-commerce help save the planet?

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If you have logged onto Google Flights recently, you might have noticed a small change in the page’s layout. Alongside the usual sortable categories, like price, duration, and departure time, there is a new field: CO2 emissions.

Launched in October 2021, the column gives would-be travellers an estimate of how much carbon dioxide they will be responsible for emitting.

“When you’re choosing among flights of similar cost or timing, you can also factor carbon emissions into your decision,” wrote Google’s Vice President of Travel Products, Richard Holden.

Google is part of a wave of digital companies, including Amazon, and Ant Financial, encouraging consumers to make more sustainable choices by offering eco-friendly filter options, outlining the environmental impact of products, and leveraging engagement strategies used in video games.

Experts say these digital nudges can help increase awareness about environmental threats and the uptake of solutions to reduce greenhouse gas emissions.   

“Our consumption practices are putting tremendous pressure on the planet, driving climate change, stoking pollution and pushing species towards extinction,” says David Jensen, Digital Transformation Coordinator with the United Nations Environment Programme (UNEP).

“We need to make better decisions about the things we buy and trips we take,” he added. “These green digital nudges help consumers make better decisions as well as collectively drive businesses to adopt sustainable practices through consumer pressure.”

Global reach

At least 1.5 billion people consume products and services through e-commerce platforms, and global e-commerce sales reached US$26.7 trillion in 2019, according to a recent UN Conference on Trade and Development (UNCTAD) report.

Meanwhile, 4.5 billion people are on social media and 2.5 billion play online games. These tallies mean digital platforms could influence green behaviors at a planetary scale, says Jensen.

One example is UNEP-led Playing for the Planet Alliance, which places green activations in games. UNEP’s Little Book of Green Nudges has also led to more than 130 universities piloting 40 different nudges to shift behaviour.

A 2020 study by Globescan involving many of the world’s largest retailers found that seven out of 10 consumers want to become more sustainable. However, only three out of 10 have been able to change their lifestyles.

E-commerce providers can help close this gap.

“The algorithms and filters that underpin e-commerce platforms must begin to nudge sustainable and net-zero products and services by default,” said Jensen. “Sustainable consumption should be a core part of the shopping experience empowering people to make choices that align with their values.”

Embedding sustainability in tech

Many groups are trying to leverage this opportunity to make the world a more sustainable place.

The Green Digital Finance Alliance (GDFA), launched by Ant Group and UNEP, aims to enhance financing for sustainable development through digital platforms and fintech applications. It launched the Every Action Counts Coalition, a global network of digital, financial, retail investment, e-commerce and consumer goods companies. The coalition aims to help 1 billion people make greener choices and take action for the planet by 2025 through online tools and platforms.

We will bring like-minded members together to experiment with new innovative business models that empower everyone to become a green digital champion,” says Marianne Haahr, GDFA Executive Director.

In one example, GDFA member Mastercard, in collaboration with the fintech company Doconomy, provides shoppers with a personalized carbon footprint tracker to inform their spending decisions.

In the UK, Mastercard is partnering with HELPFUL to offer incentives for purchasing products from a list of over 150 sustainable brands.

Mobile apps like Ant Forest, by Ant Group, are also using a combination of incentives and digital engagement models to urge 600 million people make sustainable choices. Users are rewarded for low-carbon decisions through green energy points they can use to plant real trees. So far, the Ant Forest app has resulted in 122 million trees being planted, reducing carbon emissions by over 6 million tons.

Three e-commerce titans are also aiming to support greener lifestyles. Amazon has adopted the Climate Pledge Friendly initiative to help at least 100 million people find climate-friendly products that carry at least one of 32 different environmental certifications.

SAP’s Ariba platform is the largest digital business-to-business network on the planet. It has also embraced the idea of “procuring with purpose,” offering a detailed look at corporate supply chains so potential partners can assess the social, economic and environmental impact of transactions.

“Digital transformation is an opportunity to rethink how our business models can contribute to sustainability and how we can achieve full environmental transparency and accountability across our entire value chain,” said SAP’s Chief Sustainability Officer Daniel Schmid.

UNEP’s Jensen says a crucial next step would be for mobile phone operating systems to adopt standards that would allow apps to share environment and carbon footprint information.

“This would enable people to seamlessly calculate their footprints across all applications to develop insights and change behaviours,” Jensen said. “Everyone needs access to an individual’ environmental dashboard’ to truly understand their impact and options for more sustainable living.”

Need for common standards

As platforms begin to encode sustainability into their algorithms and product recommendations, common standards are needed to ensure reliability and public trust, say experts. 

Indeed, many online retailers are claiming to do more for the environment than they actually are. A January analysis by the European Commission and European national consumer authorities found that in 42 per cent, sustainability claims were exaggerated or false.

To help change that, UNEP serves as the secretariat of the One Planet network, a global community of practitioners, policymakers and experts that encourages sustainable consumption and production.

In November, the One Planet network issued guidance material for e-commerce platforms that outlines how to better inform consumers and enable more sustainable consumption, based on 10 principles from UNEP and the International Trade Centre.

The European Union is also pioneering core standards for digital sustainability through digital product passports that contain relevant information on a product’s origin, composition, environmental and carbon performance.

“Digital product passports will be an essential tool to strengthen consumer protection and increase the level of trust and rigour to environmental performance claims,” says Jensen. “They are the next frontier on the pathway to planetary sustainability in the digital age.”

UNEP

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