Permanent Mission of the Russian Federation to the United Nations
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Тalking points of the statement by Dmitry Pankin, Chairman of Eurasian Development Bank’s Management Board, during Ministerial round table at the Forum on financing for development

1. Among the vast range of challenges Addis Ababa Action Agenda recognizes the importance of addressing the diverse needs and challenges of landlocked countries. This agenda is focused on addressing the challenges of landlocked developing countries through structurally transforming their economies, harnessing benefits from international trade and developing efficient transport and transit systems. The role of development banks in financing infrastructure projects is underscored as being particularly important, with the significant potential of regional economic integration to promote inclusive growth and sustainable development also recognized as crucial for the attainment of the development goals of landlocked developing economies.
2. The Agenda for Action of the Third International Conference on Development Financing is relevant to five of six member states of the EDB (Kazakhstan, Armenia, Belarus, Tajikistan, Kyrgyzstan) as states having no direct access to international naval communications (Kazakhstan, outleting to the Caspian Sea, has very limited access). In this respect EDB performs a unique role among regional development banks of directing the bulk of its development assistance to landlocked economies, with the scale of distance separating EDB’s member countries from the access to the sea also unique:

• Kazakhstan is the largest landlocked country in the world
• Belarus is the largest landlocked country in Europe
• Kyrgyzstan and Tajikistan apart from being landlocked are among the countries with one of the highest levels of elevation above sea level in the world   

3. According to existing estimates, the continentality of a country’s ‘economic climate’ has considerable consequences for the dynamism of its economic development (Arvis, 2010):

- land-locked countries have on average 30% lower trade turnover than countries with access to the sea;

- continentality reduces a country’s growth rate by 1.5% as compared to coastal countries;

- continental countries have relied on IMF support for a longer time than coastal countries.

The main negative factor for continental countries as compared to coastal regions is their higher transportation costs, as land transportation turns out to be much costlier than maritime transport. After comparing country statistics of foreign trade on CIF and FOB terms, Radelet and Sachs (1998) established that land-locked countries’ transportation costs exceed those of coastal economies by 50%. Other estimates indicate that the share of transportation costs in total imports may reach 10–20% for countries without access to a seacoast, while for developed countries and the US this figure is 4.7% and 2.2%, respectively (Arvis, 2010).

 

4. The problems experienced by landlocked economies are further magnified by the fact indiscriminate trade liberalization can put such countries at a relative disadvantage compared to coastal regions that enjoy the benefits of lower transportation costs and proximity to global markets. Research undertaken in this area suggests that WTO liberalization has uneven effects and according to some estimates may benefit industrialized economies more than least developed nations (A. Subramanian et al, IMF, 2006).

Furthermore, we note that the integration of landlocked economies into the global economy - whether at the level of global institutions, regional trade arrangements or bilateral agreements – is less significant than for coastal countries. In the case of the WTO we note that a disproportionate number of developing landlocked economies are still not members of the organization – of the 22 WTO observers 7 are landlocked – this is nearly a third of the total, while the share of the number of landlocked economies in the world is around 20%. Sizeable landlocked countries that are not observers in the WTO, also remain outside of the organization, one such case being Turkmenistan. Only recently and after prolonged negotiations 4 landlocked economies were admitted into the WTO (Laos, Tajikistan, Afghanistan and Kazakhstan), including Kazakhstan, the largest landlocked economy in the world. Among the countries that remain outside of the WTO are Belarus (the largest landlocked country in Europe) as well as Ethiopia (by far the largest landlocked country in terms of population).   

5. One of the main ways to counter the adversity of landlocked status is regional economic integration, which serves to alleviate the constraints of geographical isolation through:

• Lowering the costs of borders and customs
• Increases labour and capital mobility, which are paramount for higher trade and economic growth
• Providing greater cross-regional connectivity between the regions of neighboring countries as well as the connectivity to ports and other key infrastructure outlets
• Laying a stable regional framework that is conducive to investment cooperation that addresses the infrastructural needs of the countries in the region

The Eurasian Economic Union serves to address the issues of connectivity for landlocked countries via reducing customs duties and non-tariff barriers, while also advancing connectivity in transportation via the formation of a Unified transportation space – it will create 100,000 new jobs, will raise labour mobility by 30%, will increase the speed of freight transportation by 10-15%, with the respective rise in speed for international corridors reaching 25%. 

In this respect the Eurasian Development Bank is working closely with the Eurasian Economic Commission, national as well as multi-national development banks and other regional partners in advancing regional economic integration in Eurasia as a way to counter and neutralize the limitations of geography. Moreover, it is through regional economic integration that our member countries can transform geography from what is perceived as a handicap into strength as greater integration allows our countries to be more competitive in intermediating the flow of investment and trade between the East and the West in such mega-projects as the One belt-One road project.  

6. Apart from the challenges of geography there are also the institutional constraints in pursuing the UN development goals in EDB’s member countries. In particular, significant progress needs to be made in improving the countries’ investment climate, lowering administrative costs and corruption. In this respect landlocked economies in the Eurasian region find themselves in a “double trap” of adverse geography as well as underdeveloped institutions.

Eurasian Development Bank as a manager of the Eurasian Fund for Stabilization and Development implements several complex infrastructure projects in Europe and Central Asia. Apart from huge financial resources projects in capital intensive industries such as power generation and road construction require strong institutional capacity of the implementing agencies. Strengthening of the capacity to manage projects efficiently is one of the most challenging tasks for development institution. You can spend a lot of time preparing quality feasibility studies, choosing the most effective design solutions, mastering the financial structure of the project, but fail because of the lack of experience or motivation of the implementation unit. 

 

Most of development institutions (EFSD is not exception) has such an experience. We work with a PIU in one of Central Asian countries which has a long history of implementation of IFI-financed projects. All the preparatory activities for the project was made by an experienced international consultant, but when we received the first procurement documents for review and started the dialog, we understood that this team was just not suitable for the job. We had to appoint additional internal and external resources for the implementation of the project.

 

More generally, our experience points to the possibility of tenders being canceled or the time-frame for the completion of the project being postponed. Such or other irregularities may arise in the case of road construction projects or large –scale projects in the electricity sector, such as Nurek or Toktagul. 

 

Furthermore, in addition to these headwinds, there is also the difficult external environment of the world economy - stalling global trade, frail investment, and heightened policy uncertainty have slowed the recovery in world economic activity in EDB’s member countries. Weak external conditions (including low prices on natural recourses) coupled with persistent structural and institutional barriers have had an adverse impact on economic development in Eurasian countries: growth in most countries slowed considerably (Table 1), while governments’ budgets are becoming increasingly constrained, leading in many countries to the rapid accumulation of government debt (Table 2).

 

                    Table 1:  Economic growth in Eurasian economies, %

	2000-2008 (average)	2014	2015	2016
Armenia	11,2	3,6	3,0	0,2
Kirgizia	5,0	4,0	3,9	3,8
Belarus	8,0	1,7	-3,9	-2,6
Kazakhstan	9,4	4,2	1,2	1,0
Russia	7,0	0,7	-2.8	-0,2
Tadzhikistan	8,9	6,7	6,0	6,9

                      Source: National Statistical Agencies

                                     Table 2:  Government debt in Eurasian economies, % of GDP

	2014	2015	2016e
Armenia	43.7	48.8	55.3
Kirgizia	53.6	67.2	61.7
Belarus	38.8	47.7	47.7
Kazakhstan	14.5	21.9	20.1
Russia	15.6	15.9	15.7
Tadzhikistan	27.9	34.0	41.4

                                       Sources: World Bank

 

7. To overcome these challenges, the EDB as a multilateral development bank acts in line with the Addis Abeban agenda, giving its priority to integration projects and helping member countries to overcome obstacles to their economic growth, through financing of transport and energy infrastructure projects that are singled out in agenda and are rated as the most desirable directions of investment activity. As an integration development institution, EDB prioritizes the financing of investment projects aimed at developing economic ties between regional economies, supporting mutual investments and trade, which contributes to increase of share of these countries in world exports, which is one of the goals the Addis Abeban agenda. Nearly half of all projects in EDB’s current investment portfolio are integration projects that promote greater connectivity between our member countries.
8. In particular, the EDB both through its own resources and managed funds of the Eurasian Fund for stabilization and development, implements energy projects in Kazakhstan, Kyrgyzstan and Belarus, while Road projects in Armenia (North-South) and Kyrgyzstan (Bishkek-Osh) are also being financed.

The role of the Eurasian Fund for Stabilization and Development is becoming increasingly important for landlocked economies in Eurasia, given that other development partners have been gradually reducing their exposure. The Fund`s operations approval increased to USD 2.0 billion in 2016 from USD 0.5 billion in 2015. In comparison, the WB operations approval in the respective countries decreased to USD 0.3 billion from USD 0.7 billion respectively. 

9. In 2016, the first full fiscal year after the adoption of the agenda, EDB along with ADB became the leaders among all MDBs in terms of volume of operating activities in EDB’s member countries, which are landlocked. Inclusive of managed funds operations, each bank accepted to financing the new projects amounting to 2.5 billion USD.

Table 3. The volume of approved IFIs financing in 2016, including investment and project financing, special sovereign borrowings and technical support **
										млн долл.США
	АБИИ	АБР	ВБ (МБРР/МАР)	ЕИБ	ЕБРР	ИБР	МФК	СИБ	ЧБТР	Всего	ЕАБР
Армения	-	202,40	33,30	52,60	69,75	-	-	-	25,00	383,05
Беларусь	-	-	135,00	-	137,28	-	-	-	-	272,28	81,03
Казахстан	-	1 713,30	1 082,86	-	1 163,58	-	-	-	-	3 959,74	361,37
Кыргызстан	-	387,11	67,80	-	122,89	20,00	-	-	-	597,80	5
Таджикистан	27,50	157,20	10,00	-	49,82	20,28	-	-	-	264,80
Итого	27,50	2 460,01	1 328,96	52,60	1 543,32	40,28	-	-	25,00	5 477,67	447,4*
** Data on ADB and EBRD are taken from the annual reports per 2016.Data on the rest of IFIs are based on information provided on the official IFI data sites. Excluding the volume of EFSD operations in 2016 is $ 2 billion USD

10. As an International Financial and Development Institution that operates in Eurasian region we fully support the initiatives of the United Nations in recognizing the special needs and problems of the landlocked developing countries. The Eurasian Development Bank is strongly committed to the Almaty and the Vienna Programmes of Action that address the special needs of landlocked developing countries.

Recognizing the need to address the special challenges of landlocked developing countries the EDB is open for establishing or strengthening partnerships with the relevant international and regional organizations to improve and maintain efficient fund raising for landlocked and transit developing countries.

 

For reference:

Under the UNGA Resolution of July 27, 2015, the Addis Abeba Action Agenda (AAAA) of the Third International Conference on Financing for Development contains the following provisions relating to landlocked countries:

• the AAAA recognizes the importance of efforts to resolve the problems of the least developed and developing countries related to the lack of direct access to the sea, including the problems of structural transformation of economies and access to the benefits of international trade and development of efficient transport and transit systems;
• the agenda provides for the creation of a new forum under the auspices of the multilateral development banks to address the problem of insufficient funds for infrastructure financing, including transport, energy, health and sanitation in landlocked countries;
• the agenda notes the fact that many least developed countries, despite the improvements in investment climate, do not receive foreign direct investment that could encourage the diversification of their economies; it expresses a determination to support investment promotion activities for such countries, provide appropriate financial and technical support in projects preparation, contracts negotiations, disputes resolution, access to investment information and risk hedging; it also underscores the importance of these efforts in regard to landlocked countries;
• the agenda points at weak export growth of many developing countries, especially landlocked countries, in the world trade, it expresses the desire to double the share of the least developed countries in world exports in accordance with the Agenda for Action adopted in Istanbul, supports the aspiration of small and vulnerable economies in regional and world markets;
• the agenda recognizes significant potential of regional integration for achieving broad growth and sustainable development, it expresses readiness to strengthen regional cooperation and regional trade agreements, multilateral development banks are being encouraged to participate in solving problems of trade, transport and transit regional infrastructure;
• the agenda recognizes the digital divide and disparity of innovation capacity and access to technology, including information and communication technologies, it expresses the desire to encourage a narrowing of this gap, including for landlocked countries