Central Asia’s ticket to ride out of trade isolation

The disruption in global trade patterns precipitated by Russia’s invasion of Ukraine presented Central Asia with intriguing new possibilities. 

Thе region has long been reliant – far too reliant – on raw material exports and struggled to diversify from its important, but arguably suffocating and limiting, economic relationships with Russia and China. 

There have been some marginal shifts since February 2022, but they are generally underwhelming. In fact, the data indicate that governments and businesses have struggled to seize the opportunities of this moment.

Exports to Europe have decreased in relative terms. China’s share has grown. Re-exports to Russia have surged. 

Sectors like machinery and textiles are showing potential for diversification, but intra-regional within Central Asia trade still very far short of its true potential.

The raw material hoodoo 

Central Asia’s export profile remains dominated by raw materials. Hydrocarbons, metals, and uranium comprised 80 percent of total exports from 2017–2023. Kazakhstan alone accounted for 72 percent of the region’s exports during this period.

This dependency exposes the region to global commodity price fluctuations and limits its economic resilience.

On the upside, development in sectors like light industry, which grew by 85.6 percent in 2022–23, hint at untapped potential. Whether this growth represents a long-term trend or a temporary effect of post-COVID pandemic recovery and redirected trade remains unclear.

Diversification into high-value-added exports could mitigate risks tied to resource dependency. Significant investment in infrastructure and industrial capacity is needed for that to happen, however.

Chinese growth: A double-edged sword

Trade with China has surged dramatically. Central Asia’s imports from China rose from $15.8 billion in 2021 to $36 billion in 2023, now accounting for 30.1 percent of the region’s total imports. 

This is not just a one-way street. China’s share of the region’s exports has likewise grown. This dynamic presents both opportunities and risks.

On one hand, China provides Central Asia with access to a vast market for its raw materials, alongside much-needed investment in infrastructure projects like railways and energy pipelines. Chinese-backed infrastructure investments in Kazakhstan alone exceeded $28 billion in 2022. These projects promise long-term benefits by improving connectivity.

At the same time, a growing reliance on China may just end up substituting one smothering relationship (the one that Central Asia has with Russia) for another.

Imports from China are heavily skewed toward machinery, electronics, and consumer goods. This only entrenches Central Asia’s role as a supplier of raw materials rather than a producer of value-added goods. 

This dependency and imbalance have potential geopolitical or economic disruptions, since the region is permitting itself to be held hostage by single partners.

To mitigate these risks, policymakers should strategically leverage China’s demand for raw materials by negotiating technology transfers and fostering partnerships that encourage industrial growth. Diversifying trade relationships beyond China is also essential.

Russian re-export boom: A bust in waiting?

Central Asia’s exports to Russia grew by 64.4 percent in 2022–23 as compared to 2020–21. Machinery, textiles, and industrial goods drove the increase. Much of this growth was fuelled by re-exports, as Central Asia has become a key transit hub for goods destined for Russia, often serving as an avenue to circumvent sanctions. Kyrgyzstan’s trade data highlights this phenomenon: a $25.7 billion discrepancy between China’s reported exports to Kyrgyzstan, and Kyrgyzstan’s reported imports from China, likely reflects untracked goods moving through the region to Russia.

Exports of machinery and components from Central Asia to Russia surged by over 600 percent in 2022–23. Items like motor vehicle parts, printing machines, and electrical transformers dominate this trade, further underscoring the region’s role as a transit hub.

While lucrative in the short term, the re-export boom poses risks. 

The reliance on grey trade and unregulated transit undermines transparency and exposes Central Asia to compliance challenges, particularly as international scrutiny on sanctions enforcement intensifies. Without efforts to formalize this trade and diversify into higher-value goods, Central Asia risks being confined to a low-value-added role in global supply chains.

Intra-regional trade: A disappointment, and an opportunity

Despite growing in absolute terms, intra-regional trade accounted for only 9 percent of Central Asia’s total exports in 2022, up from just 3.1 percent in 2006. This modest increase underscores a missed opportunity for greater regional integration.

Kazakhstan remains the dominant player, contributing 51.5 percent of total intra-regional exports. Trade between other countries, such as Kyrgyzstan, Uzbekistan, and Tajikistan, remains limited. Uzbekistan’s exports to other Central Asian countries amounted to just 14.6 percent of its total trade volume in 2022.

Barriers such as tariff discrepancies, poor transport logistics, and limited trade harmonization continue to restrict the potential of intra-regional trade. Transportation costs within the region remain some of the highest globally.

The potential benefits of greater cooperation would be substantial. Shared investments in infrastructure like railway links and cross-border trade hubs could significantly lower costs and enhance efficiency. Harmonizing trade policies, simplifying customs procedures, and addressing non-tariff barriers could further unlock opportunities for industrial collaboration. 

What Central Asia needs: A ticket to RIDE

Central Asia’s future as a sovereign and prosperous player on the global trade stage hinges on securing a ticket to RIDE: regional integration, infrastructure development, diversification, and engagement with global partners.

Regional integration is essential for unlocking potential. Despite growing from just 3.1 percent in 2006, intra-regional trade stands at only 9 percent of total exports as of 2022. For comparison, trade within the Association of Southeast Asian Nations (ASEAN) accounts for 22 percent of its total exports. Harmonizing tariffs, simplifying customs processes, and fostering regional collaboration will make Central Asia’s trading posture more competitive.

Infrastructure development is the key to unlocking this potential. One World Bank study has noted that transport costs in the region are up to 60 percent higher than the global average. Modernizing transport networks, border facilities, and logistics hubs will lower these costs, making exports more competitive and accessible to global markets.

But unless the region’s economies can diversify, resilience will remain little more than a word. Exports remain dominated by raw materials, which made up nearly 80 percent of total trade from 2017–2023. Sectors like machinery and textiles, which recently saw growth of 224 percent and 85 percent, respectively, offer a glimpse of the potential for expanding high-value industries.

The wider world is the last piece of this puzzle. China and Russia benefit Central Asia in obvious ways – that cannot be disputed. But their role be balanced with that of other partners.

Central Asia should better leverage developing relationships with Europe, the Middle East, South Asia, the United States and other parts of the world to secure technology transfers, diversify export markets, and attract investment into emerging industries like green technology or advanced manufacturing. A ticket to RIDE represents the roadmap for Central Asia to move beyond its current trade dynamics and shape a more diversified, resilient, and dynamic economic future.