Investment Cooperation in Central Asia: Prospects and Challenges

Abstract

Central Asia is becoming an increasingly attractive destination for foreign direct investment (FDI). Although a first wave of foreign investments targeted Central and Eastern Europe in the early 1990s, followed by a second one to South-east Europe in the early 2000s, FDI is now moving even further eastward towards Central Asia. The Central Asian countries are all relatively small landlocked economies and need to promote trade and investment which enable them to closely integrate into the international economic order to achieve sustainable economic development. The level of intra-regional trade in Central Asia is low and their trade is concentrated in few commodities and hence the possibilities of setting up joint ventures emerges so that instead of exporting and importing the same product, one country may decide to set up a joint venture in the partner country (with a more favourable investment climate and cost advantage) to buy back the same in the home country. The track record of FDI in Central Asia demonstrates the urgent need to strengthen good governance, transparency, stability and the fair application of the rule of law in the region. Therefore, this article seeks to examine the prospects and challenges of regional investment cooperation and provide some of the measures to enhance the effectiveness of bilateral investment treaties and double tax avoidance treaties among the Central Asian countries.