Item 3a Infrastructure and sustainable development: state of play in central asia and the caucasus
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Infrastructure and sustainable development: state of play in central asia and the caucasus
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Item 3a Infrastructure and sustainable development: state of play in central asia and the caucasus
- 1. INFRASTRUCTURE AND SUSTAINABLE DEVELOPMENT: STATE OF PLAY IN CENTRAL ASIA AND THE CAUCASUS Kumi Kitamori, Head of Green Growth and Global Relations Division, Environment Directorate Alin Horj, Policy Analyst Paris, 30 September 2019
- 2. Why does sustainable infrastructure matter for Central Asia? Mapping hotspots projects in the region 2 Agenda
- 3. Source: International Transport Forum Central Asia is far from production and consumption centres and has limited participation in value chains
- 4. Transport connectivity in Central Asia needs to be scaled-up… Source: International Transport Forum
- 5. Source: International Transport Forum …to improve connectivity and decrease logistic costs
- 6. Central Asian countries have progressed in their infrastructure network roll out, but quality has not always kept pace with growing demand Quality of infrastructure in selected countries of Central Asia and the Caucasus 0 10 20 30 40 50 60 70 80 90 100 Road connectivity Quality of roads Railroad density Efficiency of train services Airport connectivity Efficiency of air transport services Access to seaport services Electrification rate Electric power transmission and… Exposure to unsafe drinking water Reliability of water supply Kazakhstan Georgia Mongolia Azerbaijan Kyrgyz Republic Tajikistan Source: World Economic Forum (2017) 75% of infrastructure needs replacement or maintenance in Kazakhstan (ADB)
- 7. Estimated investment gap in infrastructure in the region amounts to 6.8% of GDP until 2030 Infrastructure development is prominent on the agenda of economies in the region Historically, investment has been state-led, with limited interest from foreign investors In Central Asia and the Caucasus, investment needs amount to USD 492 bn until 2030 or USD 38 bn per year Estimated Infrastructure Needs by Region, 2016-2030 (USD billion in 2015 prices) - 1 2 3 4 5 6 7 8 9 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 East Asia South Asia Southea stAsia Central Asiaand Caucasu s The Pacific Investment needs Investment needs incl. climate adjusted estimates Total investment needs as % of GDP US$ Billion % of GDP13,781 Source: ADB. 2017. Meeting Asia's Infrastructure Needs. Manila
- 8. Regional connectivity initiatives are an opportunity to attract capital in the region CAREC Infrastructure investments of around USD 31.5 billion to promote connectivity in the region. The six CAREC corridors are: Corridor 1: Europe–East Asia Corridor 2: Mediterranean–East Asia Corridor 3: Russian Federation–Middle East and South Asia Corridor 4: Russian Federation–East Asia Corridor 5: East Asia–Middle East and South Asia; Corridor 6: Europe–Middle East and South Asia
- 9. China`s Belt and Road Initiative is also poised to further increase the connectivity of the region 0 5 10 15 20 25 30 35 Energy Metals Chemicals Transport Otherin billion USD Between 2005-18, infrastructure investments totaled USD 61 billion with the energy sector dominating the landscape (over 68%) Map of China`s Belt and Road Initiative Source: Mercator Institute for Chinese Studies (2017])Source: American Enterprise Institute (2019), China Global Investment Tracker Chinese investments in the region have increased rapidly in recent years
- 10. Most countries in the region have improved the investment climate but further reforms are needed to leverage private investments 0 200 400 600 800 1000 1200 inmillionUSD More needs to be done: access to finance tax rates and regulations inflation and corruption FDI still flowing disproportionately to extractive and fossil fuel projects Between 2003 and 2017, 43% of greenfield FDI of a total of USD 229 billion belonged to coal, oil and natural gas sectors Top three most attractive destinations: Kazakhstan, Azerbaijan, and Uzbekistan The legal framework for investment improved but implementation challenges persist Source: OECD based on fDi Markets
- 11. Opportunities and threats for Central Asia OPPORTUNITIES • Significant environmental externalities in the absence of strong environmental criteria • Low local benefits if countries become only transit corridors • Fiscal burden • Vulnerability to climate change and carbon lock-in • Better integration in global and regional value chains • Capturing co-benefits of international investments for national and regional development • Channelling energy investment in innovation THREATS
- 12. Why does sustainable infrastructure matter for Central Asia? Mapping hotspots projects in the region 12 Agenda
- 13. Mapping of High Impact Infrastructure Projects in Central Asia and the Caucasus Tracks around 900 projects under construction and planned covering five sectors with minimum value of USD 10 million Coverage: Azerbaijan; Georgia; Mongolia; Kazakhstan; Kyrgyz Republic; Tajikistan; Turkmenistan and Uzbekistan. Sources: MDBs and National Dev Banks; Commercial Databases; Think Tanks; Investment Promotion Agencies; Ministry websites; News;, etc. Dual track objective: Assess state of play of infrastructure in the region Identify hotspots based on economic, social and environmental impact Transport Energy Industry Mining and quarrying Water
- 14. Methodology and limitations Methodology for selection of hotspots* Scale Project status Connectivity impact Environmental impact LimitationsOnly large-scale infrastructure projects above USD 10 million Categories: -Planned -Under construction -Completed -Cancelled Negative and/or positive environmental impact • Comparability of data • Double counting projects and their values • Underestimation of infrastructure projects • Accuracy of project status Contribution to regional and domestic connectivity integration *Hotspot projects defined as large-scale infrastructure projects with high impact in terms of economic, environmental and social outcomes
- 15. Overview of investment projects in Central Asia and the Caucasus Oil and gas pipelines, 62 852 (12%) Upstream oil and gas, 122 726 (23%) Electric power transmission and distribution, 15 298 (3%) Electricity generation, 88 014 (16%) Manufacturi ng, 117 948 (22%) Mining and quarrying, 40 015 (7%) Transport, 94 213 (17%) Water, 4 917 (1%) 0 20 40 60 80 100 120 140 160 180 200 Kazakhstan Azerbaijan Mongolia Uzbekistan Georgia Tajikistan Turkmenistan Kyrgyz Republic Energy Industry and mining Transport Water in billion USD Inventory covers 546 billion USD of investment projects, focusing on energy (53%), manufacturing (22%), transport (17%), mining (7%); and water (1%) Kazakhstan (33%) and Azerbaijan (23%), and Mongolia & Uzbekistan (11%) undertake most investments Investment projects planned and under construction in Central Asia and the Caucasus, by sector In USD million Source: OECD analysis Energy, Manufacturing, and Transport continue to dominate the investment landscape Source: OECD analysis
- 16. Developments in the renewable sector in Central Asia remain insufficient Coal and natural gas, 16 407 (40%) Renewable energy, 3 948 (10%) Hydropower, 20 339 (50%) Electricity generation projects, planned and under construction by fuel (In MW) Around 50% of electricity generation projects are in hydro-power plants (or 20 339 MW), while coal and natural gas-fired electric power plants account for 40% of the total. Hydropower projects are primarily in countries with high hydropower potential, but with an increased risk regarding climate change (e.g. Georgia and Tajikistan) Note: Renewable energy includes solar PV and wind, while coal and natural gas includes coal-fired electric power plants and natural gas-fired electric power plants. Source: OECD analysisSource: OECD analysis Tracking around 441 energy projects accounting for USD 289 billion of investments. Upstream oil and gas (42% and electricity gen. projects (30%) dominate investments. Electricity generation capacity, breakdown by country 0 2000 4000 6000 8000 10000 12000 Mongolia Tajikistan Georgia Uzbekistan Kazakhstan Kyrgyz Republic Azerbaijan Turkmenistan Hydropower Coal and natural gas Renewable energy in MW
- 17. Transport investments in Central Asia mainly focus on roads The initial mapping tracks around 257 transport projects accounting for USD 94 billion of investments. Large scale road projects dominate the investment landscape. Developing the road transportation network continues to be a priority for governments (e.g. Nurly Zhol Program) A large number of road projects fall under CAREC corridors Airports, 987 (1%) Intermodal, 743 (1%) Ports, 3 854 (4%) Railways, 29 770 (32%) Roads, 56 801 (60%) Roads; Railways, 2059 (2%) Transport projects in Central Asia and the Caucasus, planned and under construction by sub-sector In USD million 0 5 10 15 20 25 30 35 40 45 Kazakhstan Georgia Mongolia Uzbekistan Tajikistan Azerbaijan Kyrgyz Republic Turkmenistan in billion USD Kazakhstan, Georgia and Mongolia undertake most investments in transport infrastructure Source: OECD analysis Source: OECD analysis
- 18. • Current projects in the pipeline could potentially prevent us from delivering the objectives of the Paris Agreement: – Strong focus on roads, with insufficient vehicle emission and fuel standards. – The energy mix is not shifting fast enough to renewable energy, with continued realiance on coal with advserse effect on local air pollution as well as the climate. – A very strong reliance on hydro power in some countries, with growing threat of climate impacts and competitions for water resources’. – The use of renewable energy sources is an important component of sustainable development strategies in some countries, but currently planned renewables investment seems insufficient to meet established national goals. • Access to data and information is a challenge. There is a need to improve tracking of infrastructure connectivity investments in the region. Currently, there is a lack of comprehensive information on planned and under construction projects at the country level, which could be complemented with information provided by individual countries. Conclusion
- 19. • What are the main barriers to developing a pipeline of infrastructure projects in line with SDGs and climate goals? Questions for discussion / Вопросы для обсуждения • Каковы основные препятствия на пути развития инфраструктурных проектов в соответствии с целями устойчивого развития и климатическими целями?
Editor's Notes
- Source: International Transport Forum: -Central Asia does not benefit from proximity to any major cities (in Europe, the Middle East and Asia) and has a limited participation in regional and global value chains. -But it stands to benefit from its strategic position between these major economic areas
- Source: International transport forum
- This map’s « connectivity indicator » is measured by each country’s « access to global GDP ». This indicator is calculated through a gravity-based model using four explanatory variables: distance, transport cost, travel time and border crossing time. Top performers like Western Europe and the United States have access to between 85 and 100% of GDP, while Central Asian economies have access to only 45-60% The landlocked countries of Central Asia (mostly upper- and lower-middle income countries) underperform on connectivity compared to other countries of the same income classification Despite its strategic position, the lack of capacity and connectivity of Central Asia’s transport infrastructure weakens its ability to act as a transit hub between major markets
- The existing infrastructure in the region underperforms in its role to support inclusive economic development and connectivity in the region after decades of underinvestment.
- The Asian Development Bank estimates investment needs of around USD 492 billion (or 565 billion including climate-related needs), or USD 33 billion annually until 2030. Despite increased levels of infrastructure investment in recent years, the infrastructure gap in Central Asia and Caucasus countries remains high, which impedes further development of trade and the economy. The region’s investment needs are 492 USD billion (6.8% of GDP) or an annual average of 33 USD billion between 2016-2030 (Table 1.1).
- Regional connectivity stands high on the economic development agendas of most of the emerging economies of Europe and Asia. There is a variety of initiatives and plans for enhancing connectivity and integration across Europe and Asia. The most comprehensive of these strategies, the CAREC programme, is a USD 31.5 billion initiative led by the Asian Development Bank that focuses on identifying and developing six main transport and trade corridors for long-term investments. Its goal is to strengthen transnational economic corridors.
- The China Global Investment Tracker from the American Enterprise Institute that tracks investment projects by China worldwide, shows that most of these investments in the region focus on the energy sector, accounting for over 68% (or USD 41 billion) of total investments. The transport sector, by contrast, has received only 11% of total Chinese investments, followed by metals (10%) and chemicals (7%). The largest recipient of Chinese investments in the region is Kazakhstan, with over USD 32.6 billion, including with major investments as part of the BRI since 2013, followed by Turkmenistan and Mongolia with each USD 6.8 and 6.2 billion.
- -FDIs are still disproportionally flowing to extractive and fossil fuel projects. Between 2003 and 2017, greenfield FDIs in the region accounted for over USD 228.8 billion, 43% of which belonged into coal, oil and natural gas sectors. Kazakhstan attracted the largest share with USD 56.4 billion, followed by Azerbaijan and Uzbekistan with 16.2 and 13 USD billion respectively. The investment climate is improving in the region but private sector participation needs to be scaled-up. Among the most common challenges to doing business in the region is access to finance, tax rates and regulation, inflation and corruption
- Opportunities: -Central Asia’s participation in global markets is mostly limited to its role as a source of raw or minimally refined materials (gold from Kyrgyzstan and Uzbekistan, oil and gas from Kazakhstan, gas from Turkmenistan, aluminium from Tajikistan). There is an opportunity for these countries to move further up regional and global value chains towards more value-added products. -Huge investment flows are being directed towards Central Asia through the BRI and the CAREC corridors because of the countries’ strategic position between Europe and Asia. These countries can take advantage of international interest and finance to support their domestic development and connectivity agendas -Many countries in Central Asia (Kazakhstan, Uzbekistan, Turkmenistan) still depend heavily on fossil fuels for their electricity generation. The influx of international finance could be directed towards renewable technologies that could transform the region’s energy mix and emissions Threats -The enforcement of environmental regulation in the region is weak, and in the absence of strong environmental criteria the inflows of international finance could go towards projects that damage Central Asian citizens’ wellbeing and the future growth prospects of the countries -Since the interest in Central Asia comes from the fact it lies between Europe and Asia, there is a risk that Central Asia becomes nothing more than a transit zone through which goods flow on their way to larger markets. (One concrete example of this threat is the proposed rail link between Uzbekistan, Kyrgyzstan and China. The link would pass through Kyrgyzstan without connecting to any of the country’s major cities or areas with important export industries, and it wouldn’t connect to the country’s domestic rail service) -Some of the countries (particularly Tajikistan and Kyrgyzstan) are taking on so much debt from foreign-backed infrastructure projects that their future fiscal sustainability is in question. -The rapid development of infrastructure without prudent planning and environmental protections could lead to long-term lock-in of unsustainable energy and transport systems. The region is particularly vulnerable to the effects of climate change, but resilience has not been a key consideration in many of the infrastructure projects under development in the region.
- -The report is based on an inventory of around 900 infrastructure projects compiled by the OECD in eight countries of Central Asia and the Caucasus (Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Mongolia, Tajikistan, Turkmenistan and Uzbekistan and five sectors (transport, energy, industry, mining and water) -The inventory covers projects planned, under construction or completed in the period 2000 to 2018, and draws on publicly availablel source of information at international and national level, as well as from commercial databases. -The objective is to assess the state of play and identify hotspots - infrastructure projects with potentially high economic, social and environmental impacts -
- Just a note on methodology used to select the hotspot projects. -Hotspot projects refer to infrastructure projects with potentially high impact in terms of economic, environmental and social outcomes. Those projects were selected against four criteria: scale (over 10 million USD), the environmental and connectivity impact, as well as on their status (we clustered status in four categories but we used planned and under construction). -Of course, given that there is no official tracking of infrastructure investments at the national level, the data should be interpreted as indicating general trends rather than exact investment volumes. While commercial databases and websites provide interesting insights on current projects and investments, the analysis is not comprehensive and can bring some inaccuracies. First, the data is not always comparable across countries, second individual projects can be attributed to several countries if it is a cross-border project; often the investment value can be under estimated, as well as the status of the project is not always updated in real time.
- The database put together for this analysis tracks around USD 546 billion of planned and under construction infrastructure projects -Energy projects account for more than half (53% or USD 289 billion), followed by manufacturing projects (22% or USD 117.9 billion) and transport (17% or USD 94.2 billion). Finally, water projects only account for 1%, or USD 4.9 billion of total investments and they primarily relate to water supply and sanitation projects. Within energy investments, upstream oil and gas projects account for over 42% (or USD 122.7 billion), -The top countries in terms of infrastructure investments are Kazakhstan (33%) and Azerbaijan (23%), followed by Mongolia and Uzbekistan both attract 11% of total investments.
- -Energy projects account for around 289 USD billion of investments -in terms of investment projects in electricity generation in the region, around 50% of the investments by capacity are in hydro-power plants (or 20 339 MW), while coal and natural gas-fired electric power plants account for 40% of the total. Other renewable projects such as solar photovoltaic (PV) and wind account for 10% of electricity generation. -The hydropower projects are primarily concentrated in Georgia and Tajikistan, which have high hydropower potential but certainly an increased risk regarding climate change.
- Transport infrastructure projects in the database account for around USD 94.2 billion, and consist mostly of road projects of around USD 56.8 billion or 60% of total transport investments. Investments in railways come second at around USD 29.8 billion (or 32%), followed by port projects totalling USD 3.9 billion (4%). -a large number of projects are regional -road projects continue to be a priority for governments in the region. HOWEVER ailways will also require significant investments flows in the coming years to maintain and improve performance. It is estimated that the region will need around USD 38 billion up to 2030 to upgrade rails and build new lines (AIIB, 2019[9]) -Kazakhstan, Georgia and Mongolia undertake most investments in transport infrastructure