World Economic Forum on Europe and Central Asia2008

World Economic Forum on Europe and Central Asia
Confronting Challenges in Defining a Collaborative Future
Istanbul, Turkey 30 October – 1 November 2008

Report

The views expressed in this publication do not necessarily
reflect those of the World Economic Forum.

World Economic Forum
91-93 route de la Capite
CH-1223 Cologny/Geneva
Switzerland
Tel.: +41 (0)22 869 1212
Fax: +41 (0)22 786 2744
E-mail: contact@weforum.org
www.weforum.org

© 2008 World Economic Forum
All rights reserved.
No part of this publication may be reproduced or
transmitted in any form or by any means, including
photocopying and recording, or by any information
storage and retrieval system.

REF: 241108

Contents

Page 3
Executive Summary

Page 8
Business: Seizing Opportunities

Page 10
Geopolitical Moves

Page 12
Re-emergence of Central Asia

Page 14
Securing Energy and Resources

Page 16
Turkey: Taking the Lead

Page 19
Acknowledgements

2 | World Economic Forum on Europe and Central Asia

Executive Summary

“We have to work together on a regional and
global future if we want to build a better world.
We need to restore confidence and to highlight
the necessity for corporate global citizenship.
Now when companies are under so much
pressure we must show that they have, despite
everything, a deep social responsibility.”

Klaus Schwab, Founder and Executive Chairman,
World Economic Forum

The first World Economic Forum on Europe and Central the form of economic nationalism and protectionism in
Asia was both timely and relevant in the wake of the the near future. Financial models have clearly been
global financial crisis. Strategically located as a bridge disrupted, but national governments and central banks
between East and West, Turkey as an established have succeeded in working together rather than
democracy is well positioned in today’s charged individually, and they have moved swiftly and effectively to
geopolitical environment to serve as an anchor for trade coordinate their efforts in dealing with the problem.
and investment, and as a peace broker across the region
and beyond. Thomas Mirow, President of the European Bank for
Reconstruction and Development (EBRD), noted that
The global financial meltdown loomed over the meeting. Turkey is “well placed” to weather the storm and that
Participants remained “cautiously optimistic” about the emerging market economies that have developed their
future of the region, despite the clouds of chaos and own financial systems are likely to resist better than those
uncertainty gathering at its borders. There was general that depend heavily on external financing. He noted that
acknowledgement that the financial crisis will have an the crisis is likely to foster greater regional cooperation
impact on emerging markets as it is difficult to decouple between emerging market economies – and perhaps
from the seismic global events of the past months. economic integration.
Indeed, the decoupling theory of the financial markets is
failing to withstand the test of a real worldwide crisis and Many political and business leaders were surprisingly
it has proven impossible to remain isolated from the upbeat about the region’s economic future and pointed
global financial turmoil. out that within a crisis there is always opportunity –for
deeper collaboration, stronger economic cooperation
Nevertheless, the enormous growth potential of Turkey and, in some cases, reconciliation. For example, Ali
and its surrounding regions is likely to soften the impact Babacan, Minister of Foreign Affairs and Chief Negotiator
considerably. Developing countries that had been less of Turkey, described an era of “new relations” between
integrated in the global financial architecture may be less Azerbaijan and Armenia, and Armenia and Turkey,
affected and may even draw some benefits from the ushering in huge opportunities in communications,
crisis. transport and energy.

“This meeting has taken place in unusually challenging Turkey is also assuming the role of regional peace broker.
times [as we are] facing unusually challenging issues. The conflict in Georgia in August 2008 spurred efforts by
There was no panic about the global economy or about Turkey to create a Caucasus Stability and Cooperation
geopolitical matters. It was a cool review of facts and Platform to bring countries in the region together to
opportunities,” observed Victor Halberstadt, Professor of discuss economic, political and security issues. This is an
Public Economics, Leiden University, Netherlands, at the important platform as many countries in Central Asia and
closing plenary. the Caucasus still have “dysfunctional” relationships with
their neighbours. Both regions are resource-rich and
One strong message that emerged during the strategically located. As a result, countries in both are
discussions was that the financial meltdown has resulted being courted by the US, India, Russia, Europe and
in dislocation but has not led to fragmentation of the China. At the same time, the world is grappling with the
world economy. It remains a major challenge and meaning of a more assertive Russia.
responsibility of both governments and businesses to
curb tendencies towards fragmentation, which could take


“A new world order is likely to emerge
from the current economic crisis, but it is
important that it be inclusive rather than
exclusive and that it favours dialogue
between nations in the region.”
Recep Tayyip Erdogan, Prime Minister of Turkey

Turkey is determinedly pursuing its candidacy for the EU, market plunging and the declining oil and commodity
while at the same time strengthening its ties with other prices depressing investors’ confidence in Russian
regional groups, including the African Union, the Gulf assets. Nevertheless, prospects for the future growth of
Cooperation Council and the League of Arab States. It the Russian economy are still strong; several regions
has also expressed an interest in becoming a member of such as Tatarstan have embarked on ambitious
the Shanghai Cooperation Council. Turkey will be able to infrastructure projects that will guarantee significant
exercise more regional clout after having won the bid for stimulus for the economy over the coming years. Russia
a place on the UN Security Council. There were positive is also striving for international recognition of the
signals from both the Turkish government and the Turkish legitimacy of its actions and interests in the Caucasus,
business community about EU accession, a view that and asserting leverage over its “near abroad” (term used
was echoed by EU officials. in Russia to describe non-Russian states that were once
part of the USSR). It is working in concert with other
Improvements in transportation networks, regional powers to cement a Nagorno-Karabakh solution
telecommunications and regional cooperation are and become a guarantor of peace between Armenia and
powerful incentives that are expected to spur new Azerbaijan.
investment. Turkey – singled out as having very large and
untapped potential, in part due to the strong growth of a Several business and political leaders called for a “new
dynamic middle class and a young population – is world order”. Klaus Schwab, Founder and Executive
increasingly being looked at to galvanize economic Chairman of the World Economic Forum, called for “a
development across the region and beyond. Now is the new business ethos” and told participants that in an
time for emerging markets to “develop and improve increasingly interdependent and interconnected world,
domestic capital markets,” advised Jean Lemierre, Senior there is a need to find new ways for global cooperation.
Adviser to the Chairman, BNP Paribas Group, France. It “It remains to be seen whether we will be able to create a
is also time for countries to create enabling environments world community that will find the right balance between
for foreign direct investment (FDI). necessary regulation and maintaining entrepreneurial
dynamism. It is now more important than ever not to
The spectre of corruption still hovers over the region and choke off the engine of the real economy,” he said.
must be dealt with if Central Asia is to attract quality FDI.
One of the biggest opportunities of this financial crisis is This first World Economic Forum on Europe and Central
that it will cease to be business as usual. The taxpayers Asia took place in the eye of the maelstrom. The
who bailed out the system will increasingly demand more meeting’s theme – Confronting Challenges in Defining a
accountability and transparency. There is a lack of Collaborative Future – is the task of world leaders today
consumer and investor trust, which has left a sizeable as they look for solutions for tomorrow. The meeting
vacuum. Going forward, transparency is going to be even defined challenges, identified opportunities and laid the
more important to restore the trust and confidence to groundwork for the World Economic Forum Annual
make the markets work. Transparency, oversight and Meeting 2009 to be held in Davos-Klosters, Switzerland
good governance widen the scope for global corporate on 28 January – 1 February, under the theme Shaping
citizenship and deeper social responsibility. the Post-Crisis World. At the Annual Meeting 2009,
governments and business will sit together and focus on
While the impact of the global financial crisis had initially an agenda designed to tackle the key issues facing the
been relatively muted in Russia, the situation has world and how best to restore sustained economic
deteriorated over the last few months with the stock growth.


“Taxpayers saved the day by bailing out the system to save
the economy and ultimately their jobs. Taxpayers won’t
accept business as usual. They will ask for measures to
correct the system.”

Jean Lemierre, Senior Adviser to the Chairman, BNP Paribas Group, France

“Enlargement is even more relevant now. The Turkish business
community is practically integrated into Europe. But we would
like to have higher transparency and more international norms
in our business. In times like these, this is even more
important. The reforms we are expecting will affect our
government structures. We need this.”

Güler Sabanci, Chairman and Managing Director, Haci Ömer Sabanci Holding, Turkey

This report on the World Economic Forum on Europe and • There is tremendous potential across the Caucasus
Central Asia is centred on five essays linked to the and Central Asia, which is expected to be unleashed
programme’s themes: Business: Seizing Opportunities; through strengthened economic cooperation. However,
Geopolitical Moves; Re-emergence of Central Asia; economic diversification is key, despite the vast energy
Securing Energy and Resources; and Turkey: Taking the resources in some of the region’s oil-rich countries –
Lead. 70% of the world’s fossil fuels are produced south and
southeast of Turkey.
Geopolitical Moves
Assessing the effects of the current financial turmoil and
economic slowdown on the region and identifying Reassessing recent geopolitical developments across the
business opportunities stemming from the crisis will help Eurasian continent and rebuilding confidence in political
determine the path towards rebuilding consumer and cooperation is critical in today’s charged – and changing
investor confidence. – environment.

• No one country is immune to the effects of the global • Still-shifting power equations – especially the
financial meltdown, but Turkey is well positioned to resurgence of Russia on the world stage – impinge on
weather the storm. It is viewed as a strategic anchor an array of issues including the enlargement of the
that is expected to energize the integration of the European Union and the expansion of the North
Caucasus and Central Asian regions into the world Atlantic Treaty Organization (NATO), the extent of
economy. Turkey has a well-balanced economy with regional cooperation among countries in Central Asia
growth supported by domestic consumption and and the Caucasus, and even Turkey’s critical role as an
exports. aspiring EU member and a bridge between East and
West.
• Emerging market economies that have developed their
own financial systems are likely to fare better than • “Frozen conflicts” across the region include lingering
those that depend heavily on external financing. There ethnic divides and territorial disputes that could quickly
are unique investment opportunities across the region, widen, particularly if extremists take to terrorism. Iran’s
particularly in energy infrastructure and transportation greater assertiveness in the Middle East and the US-
networks. led invasion of Iraq and the ongoing war there, as well
as in Afghanistan, have stirred up concerns and
• The information technology and communications simmering resentment. The conflict that erupted
sector (ICT) holds out a beacon of hope as it will not between Russia and Georgia this August over the
be affected to the extent of other areas of the economy status of South Ossetia suggests that long-standing
by the global slowdown. This is because the crisis enmities and rivalries in Central Asia and the Caucasus
offers new business opportunities as businesses in all die hard.
sectors look to technology to raise productivity and
improve efficiency. • Conflict resolution efforts are critical. New regional
cooperation based on common security frameworks,
political dialogue, economic interdependency and
multicultural coexistence could be a way forward.


“The new attitude should be that instead of just reacting to
crises we should have a vision of order. Instead of waiting
for the storm, we should act …. We will create a new vision
of order and everybody will win.”

Ahmet Davudoglu, Chief Adviser to the Prime Minister, Turkey

“The EU’s long-term vision is to create an integrated market
that includes neighbouring countries, a market of more than
one billion people. In the world of tomorrow, integrated
structures will be the best model for success.”

Günter Verheugen, Vice-President and Commissioner, Enterprise and Industry, European
Commission, Brussels

• Turkey’s deft diplomacy during the Russian incursion • The market potential is huge, particularly if it stretches
into Georgia in August 2008 highlighted its potential as out to the Middle East, where economic activity
a crucial bridge between East and West, between continues apace and exports to Central Asia are rising.
Europe and Central Asia and the rest of Asia, and Exports from Central Asia to the Middle East have risen
between Western and Eastern Europe including by more than tenfold from 1997 to 2006. The Gulf
Russia. Turkish leaders have underscored this unique countries are important investors in Central Asia. At the
role as a key reason for Turkey to join the EU. Europe same time, fears of a brain drain from the region could
needs Turkey as much as Turkey needs Europe. materialize as talent is attracted to the wealth of the
Gulf.
Understanding the economic and political integration
processes underway in Central Asia and the region’s The state of energy and resource security across the
emerging role in global political, economic and security continent depends on identifying, managing and finding
structures is complex, but necessary to identify solutions for geopolitical, economic, social, technological,
opportunities and avoid pitfalls in the post-crisis world. ecological and even geological risks.

• The geopolitics of Central Asia are becoming more • Central Asia, Russia and the Middle East may have
complex and contested. Countries in Central Asia and abundant supplies of energy, but the logistics of getting
the Caucasus are fragile and still in shock following the them to European markets are fraught with
August 2008 conflict in Georgia. Russia’s action not complexities and hazards.
only highlighted the vulnerability of pro-Western nations
in the Caucasus, but also the vulnerability of oil and • The security of supply is a major concern for Europe
gas pipeline routes from Central Asia that run through and Turkey, while Russia and other producers in
Georgia and bypass Russia. At the same time, both Central Asia and the Middle East want to be sure that
regions are being courted by the US, India, Russia, demand from Europe and Turkey is strong. All sides
Europe and China – as they compete either for have an interest in keeping transport routes open and
resources or influence, or both. establishing new reliable ones.

• Turkey is the linchpin of the Central Asian region, a • Infrastructure deficiencies are a pressing problem.
crossroad for Europe, the Caucasus, Asia and the Stronger partnerships among developers, consumers
Middle East. There is a potential “new Silk Road”, both and host governments, along with more leadership
real and virtual. from these governments, will be necessary to set a
framework for future infrastructure development.
• There is a need for deeper cooperation across the
region and beyond. Energy is likely to be the currency • Turkey is likely to be a critical bridge in helping to bring
of a new Silk Road, but there are opportunities for new sources of oil and gas to European markets.
cooperation in regional development across a range of Turkey could also play a crucial role in addressing the
economic sectors – industry, agriculture and services – water stress problems of Central Asia. The ongoing
and good prospects for attracting extra-regional capital debate on the impact that the use of water for biofuels
to help finance them. has on food production and the prices of staples such
as corn and rice has underscored how big the problem
of water stress is across regions.

Turkey: Taking the Lead • Turkey is in a strategic position for international
companies that use it as a base for running operations
in up to 90 other countries. Within a radius of four
There are high expectations for Turkey’s economic growth
hours by plane, there is a market of 1.3 billion
and presence in the region, as well as its leadership role
consumers. Foreign direct investment in Turkey has
in easing tensions relating to energy security. The country
skyrocketed from around US$ 1 billion until 2005 to
is also expected to play an important role in promoting
more than US$ 20 billion in 2007. And there is further
multicultural and multi-religious societies.
scope for investment both in Turkey and across the
region.
• In October 2008, Turkey won a non-permanent seat on
the United Nations Security Council for two years,
winning 151 votes out of a total 192 UN members.
That Turkey mustered such widespread support is a
reflection of the country’s increasing weight in
international politics and the growing confidence of the
international community.

• Turkey’s proactive diplomacy to diffuse the Russia-
Georgia conflict, in concert with the EU’s efforts,
demonstrated both the special influence that Turkey
would bring to Europe and the convergence of Turkish
and European geopolitical and economic interests.
Both sides need each other. EU membership would
further open up European markets to Turkish
companies and open Turkey to even more investment
from Europe.

• Turkey’s labour force is not cheap, but it is highly
qualified and very productive. There is a pool of
qualified management talent, and Turkey is positioned
at the centre of a market that represents roughly 1.2
billion people. Promising growth sectors include energy,
infrastructure, transport, the automotive industry,
consumer products, agriculture, mobile telephony and
information communication technology (ICT).



“There are a lot of opportunities in the “Diversification of our economy is
Middle East and Central Asian aimed at developing its real sectors,
countries. But bureaucracies are increasing market-oriented reforms and
unbelievable …. We need to wake up promoting small and medium
and be more business-oriented.” businesses.”

Khalid Abdulla-Janahi, Chairman, Ithmaar Bank, Bahrain Khojamyrat Geldimyradov, Deputy Prime Minister of
Turkmenistan
No one country is immune to the effects of the global
financial meltdown, but Turkey’s position at the the Caspian Sea needs an anchor and Turkey will
crossroads of East and West, makes it a strategic become that “anchor for trade and investment.”
anchor that is expected to energize the integration of
surrounding regions into the world economy. Ahmet Ashaboglu, Chief Financial Officer, Koç
Prospects for Turkey and Central Asia as a region are Holding, Turkey, reminded participants that although
good, but there will be an inevitable slowdown. Turkey’s labour force is not cheap, it is highly qualified
Nevertheless, most business leaders are more than and very productive. There is a pool of qualified
cautiously optimistic – they are upbeat about the management talent, and Turkey is positioned at the
future. centre of a vast market that represents roughly 1.2
billion people. Promising growth sectors include
“Turkey has a lot to offer in the long run despite the energy, infrastructure, transport, the automotive
current doom and gloom,” Mehmet Simsek, Minister industry, consumer products, agriculture, mobile
of Economy of Turkey, told participants. “Turkey will telephony and IT.
remain attractive simply because of the sheer size of
its domestic market. It is the second most populous Khojamyrat Geldimyradov, Deputy Prime Minister of
country in Europe, and it has one of the most Turkmenistan, said his country is developing its
attractive demographics.” Turkey is going through a international gas pipeline network beyond Russia and
major transformation in its business practice, legal Kazakhstan with a new link to China soon to go into
system, institutional set-up and even in terms of its operation and another planned to Afghanistan,
mindset. “This transformation means that you invest in Pakistan and India. Turkmenistan has embarked on a
Turkey as an emerging country offering high-growth programme of economic reform aimed at attracting
potential but at a relatively lower risk in the long run,” outside capital not only in exploiting its vast oil and
he said. gas reserves, but also in new sectors such as tourism,
textiles, energy derivatives and food processing.
Jean Lemierre, former EBRD president and currently
Senior Adviser to the Chairman, BNP Paribas Group, Thomas Mirow, President of the European Bank for
said that Turkey has been “a very competitive market Reconstruction and Development (EBRD), pointed out
and is even more so today.” According to Lemierre,


“ICT can play a fundamental role in helping companies in all
sectors face the crisis by facilitating cost-cutting, productivity
gains and enabling businesses to get closer to their
customers. It is a time to come up with new and better things
because the world needs new technology.”
Ali Faramawy, President, Microsoft Middle East and Africa, and Vice-President, Microsoft
International, Microsoft, Turkey

“There is going to be less investment to cover deficits in
the United States. The US will not be so attractive any
more. This region [the Middle East and Central Asia] will
prove to be a great attraction.”

Mohamed Nahavandian, President, Iran Chamber of Commerce, Industries and Mines
(ICCIM), Islamic Republic of Iran

that emerging market economies which have should be paid to developing sustainable alternatives
developed their own financial systems are likely to fare to hydrocarbons, especially wind power which could
better than those that depend heavily on external be an especially promising source of energy in some
financing. The question on the minds of many people Central Asian countries.
is whether emerging economies can survive, despite
the financial maelstrom churning up markets and Bolat Akchulakov, Vice-Minister of Energy and Mineral
eroding consumer confidence beyond its borders. The Resources of Kazakhstan, called for the development
consensus is “yes”. Participants agreed that the of common rules and regulations for biofuel
tremendous economic potential within Turkey, Central development, which would allow them to be traded as
Asia and the Caucasus would be unleashed through a commodity like oil. He pointed out that advances in
strengthened regional cooperation. biofuel development and use are happening in parallel
to his country’s extensive oil and gas development.
The information communication technology (ICT)
sector holds out a beacon of hope: it will be affected Notably, 70% of the world’s fossil fuels are produced
by the global slowdown, but not to the extent of other south and southeast of Turkey. Economic
areas of the economy. In fact, the financial crisis offers diversification – including focusing on energy and
new business opportunities as businesses in all natural resources in Central Asia – is key, despite the
sectors look to technology to raise productivity, vast energy resources in some of the region’s oil-rich
improve efficiency and get closer to their customers. countries. Infrastructure remains a major challenge
This resilience – and potential – stems from the fact across Central Asia and the Caucasus, but within this
that the industry is structurally different and healthy challenge is an opportunity for investment, particularly
because of its debt-equity ratio. in infrastructure and transportation networks.
Connectivity spells promise – connectivity in IT, energy,
In emerging markets, demand is still there and overall transport, markets and financial systems.
penetration still low. Milko van Duijl, President, Lenovo
EMEA, France, is also upbeat about the future. The Foreign Direct Investment in Europe and Central Asia
sheer size of emerging markets is growing along with
Growth rate of inward FDI stock in Russia have fallen below EU27 growth rates
purchasing power. For example, Turkey currently has a
80%
population of 71 million and PC market penetration
that is roughly 10%. In three years, the market is
Annual change in inward FDI stocks

60
Turkey
expected to double and experience 20% PC
Russia
penetration. 40

Central Asia
20
Alper Akdeniz, Managing Partner, Central Asia and EU27
Caucasus, PricewaterhouseCoopers, Kazakhstan, 0

saw no immediate prospect for regional economic
integration, but a strong outlook for increasing -20
2001 2002 2003 2004 2005 2006
cooperation in health, education, energy and mining.
He suggested that in the energy sector attention Source: UNCTAD


Geopolitical Moves

“There are frozen conflicts across the “There will be no real domestic
region. If they are not addressed in a reconciliation in all countries without
timely manner through diplomacy and regional reconciliation because our
dialogue, this can turn into real demography is so heterogeneous.
difficulties …. By using its special Turkey has played and can continue to
position in the region, Turkey is play the role of a very good regional
contributing more and more to stability broker. Regional brokers are a healthy
and peace in the region and further supplement, but they are absolutely no
away.” substitute for international
organizations such as the UN.”
Ali Babacan, Minister of Foreign Affairs and Chief Negotiator of
Turkey Mowaffak Al Rubaie, National Security Adviser, National
Security Council, Iraq

Nearly two decades since the collapse of the Soviet
Union, the disintegration of the cold war order is still Yet Iran’s greater assertiveness in the Middle East as well
having an impact on the geopolitics of Europe and as the US-led invasion of Iraq and the ongoing war there,
Central Asia. Still-shifting power equations, especially the as well as in Afghanistan, have stirred up concerns and
resurgence of Russia on the world stage, impinge on an simmering resentment. The conflict that erupted between
array of issues including the enlargement of the European Russia and Georgia this August over the status of South
Union and the expansion of the North Atlantic Treaty Ossetia suggests that long-standing enmities and rivalries
Organization (NATO), the extent of regional cooperation in Central Asia and the Caucasus die hard. “The biggest
among countries in Central Asia and the Caucasus, and diplomatic and economic problem these fragile
even Turkey’s critical role as an aspiring EU member and developing states [in Central Asia] have is that their
a bridge between East and West. friends don’t talk to each other and they haven’t worked
out their differences,” reckoned S. Frederick Starr,
Of particular concern is what Turkish Foreign Affairs Chairman, Central Asia-Caucasus Institute at Johns
Minister Ali Babacan called the “frozen conflicts” across Hopkins University.
the region. They include lingering ethnic divides and
territorial disputes that could quickly widen, particularly if Participants agreed that conflict resolution efforts are
extremists take to terrorism. “If they are not addressed in critical. “We need a new regional framework for all these
a timely manner through diplomacy and dialogue, these frozen conflicts based on common security frameworks,
can turn into real difficulties,” Babacan warned. “Our political dialogue, economic interdependency and
world does not need new cold or hot wars, but multicultural coexistence,” argued Ahmet Davudoglu,
constructive peace,” said Turkish Prime Minister Recep
Tayyip Erdogan.


“This is the first Georgian crisis in which the EU took
charge. It was the French presidency of the EU that
stopped the tanks moving into Tbilisi.”
Pierre Morel, EU Special Representative for Central Asia, Council of the European Union,
Brussels

“We need to reach out and get the
Russia-NATO dialogue back on
track.”

Espen B. Eide, Deputy Minister of Defence of Norway

Chief Adviser to the Prime Minister of Turkey. “There will Western and Eastern Europe including Russia. Turkey’s
be no real domestic reconciliation in all countries without leaders have underscored this unique role as a key
regional reconciliation because our demography is so reason for the country to join the EU. Europe needs
heterogeneous,” said Mowaffak Al Rubaie, National Turkey as much as Turkey needs Europe. “[EU]
Security Adviser on Iraq’s National Security Council. enlargement [to include Turkey] is even more relevant
Concluded Iranian Foreign Affairs Minister Manouchehr now,” said Güler Sabanci, Chairman of Turkish group
Mottaki: “There must be greater consultation and Sabanci Holding. “For us in the business community,
convergence among countries in the region.” accession to Europe is a civilization project.”

The conflict in Georgia clearly highlighted the need for It would also be a key step in enhancing Turkey’s regional
Europe and the US to come to terms with a resurgent and global stature as it leverages its good relations with
and more assertive Russia. At the meeting, the Georgian its neighbours including Iran and Israel, and with strategic
Foreign Minister Ekaterine Tkeshelashvili claimed that partners such as the US, to take on a more active role in
Russia’s incursion into her country was aimed at the international community. Turkey’s membership in the
changing the government in Tbilisi. Moscow, she insisted, EU would enhance the security of Europe.
is concerned about Georgia’s success as an independent
state that is developing its democratic system and the “Enlargement and an open door policy is providing a
rule of law, liberalizing its economy and becoming “part of buffer zone of safety for the EU,” said Babacan. “Turkey’s
an expanded Europe in political terms.” Russia, added role is very important. When Turkey is an EU member,
Robert Simmons, NATO Deputy Assistant Secretary- other regions will feel the EU coming closer to them.”
General and Special Representative to the Caucasus and That alone would be a significant contribution to peace
Central Asia, “acted disproportionately. What Russia did and stability in Europe, Central Asia and the Caucasus –
was directed against all three countries in the Caucasus.” and, of course, the rest of the world.
Norwegian Deputy Minister of Defence Espen B. Eide told
participants: “We need to reach out and get the Russia-
NATO dialogue back on track.” Turkey's Trade Partners

Trade with China and Russia rose from 5.8% of Turkey's trade in 1999 to 15.1% in 2007
The EU and Turkey played critical roles in defusing the
conflict in Georgia. “This is the first Georgian crisis in 100%
Share of total imports and exports with Turkey

which the EU took charge. It was the French presidency Rest of world

of the EU that stopped the tanks moving into Tbilisi,” 75 China

explained Pierre Morel, EU Special Representative for Russia

Central Asia. While supporting the EU’s efforts, Turkey Middle East
50 US
was spurred to propose the creation of a Caucasus
EU
Stability and Cooperation Platform that would bring
25
together countries in the region including Russia to
discuss economic, political and security issues.
0
1999 2003 2007*

Turkey’s deft diplomacy highlighted its potential as a * through three quarters

crucial bridge between East and West, between Europe Source: IMF

and Central Asia and the rest of Asia, and between



“The transportation Silk Road is “The new Silk Road is developing and is
embodied by a new cross-continental both physical and virtual. But there are
railway, as well as numerous pipelines. impediments such as restrictions on the
The resources Silk Road has at its core movement of people and goods as well
approximately 50% of the world’s as weaknesses within the educational
people, and a significant amount of the system. But these impediments are on
world’s natural resources. Each of these their way out. They will not be there in
roads provides unique investment 20 years. I am confident that today’s
opportunities that can be converged youth are more imaginative in solving
into a win-win situation for everyone.” problems than previous generations.”

Bulent Bulgurlu, Chief Executive Officer of Koç Holding, Turkey Hamid Karzai, President of Afghanistan

For thousands of years, the ancient Silk Road was a countries have “dysfunctional” relationships with their
crossroad for the flow of people, goods and ideas neighbours, while both resource-rich regions are being
between European, Western Asia, South Asia and courted by many suitors – the US, India, Russia,
East Asia. Today, Turkey is the lynchpin of the Central Europe and China – as they compete either for
Asian region, a crossroad for Europe, the Caucasus, resources or influence, or both.
Asia and the Middle East. The region’s history has
been shaped by both climate and geography. Its Numerous participants pointed to the potential of a
aridness traditionally made agriculture difficult and it “new Silk Road”, both real and virtual. The foundation
was cut off from vital trade routes by its distance from for a new Silk Road is strengthened regional
the sea. Today, countries of the region are close to cooperation and, perhaps, eventual economic
political hot spots such as Iraq and Afghanistan, integration – even more important now in light of the
increasing their strategic influence. But Central Asian global financial crisis. However, several participants
countries are no strangers to conflict – their history pointed out that fostering such cooperation is much
has been marked by conflict. easier said than done. S. Frederick Starr, Chairman,
Central Asia-Caucasus Institute, Johns Hopkins
The geopolitics of Central Asia are becoming more University, said that that the region is “smothered” with
complex and contested. Countries in Central Asia and organizations but that they do not speak to each other
the Caucasus are fragile and still in shock following or solve problems for the countries themselves. Starr
the August 2008 conflict in Georgia. Russia’s action described the Central Asian region as fragile states
highlighted the vulnerability of pro-Western nations in surrounded by nuclear neighbours, adding that as
the Caucasus, but also the vulnerability of oil and gas post-colonial states they are defensive about their
pipeline routes from Central Asia that run through sovereignty and cautious when dealing with
Georgia and bypass Russia. At the same time, many neighbours.


“The countries within Central Asia should cooperate and give
more development of their institutions, for example by creating
a Central Asian Union. There are many obstacles at the
moment, but the future – and progress – lies in this direction.
How can Kazakhstan be prosperous when our neighbours are
weak or poor?”
Yerbol Orynbayev, Deputy Prime Minister of Kazakhstan

“The biggest diplomatic and economic problem these fragile
developing states have is that their friends don’t talk to each
other and they haven’t worked out their differences.”

S. Frederick Starr, Chairman, Central Asia-Caucasus Institute, Johns Hopkins University, USA

Ali Babacan, Minister of Foreign Affairs and Chief so low that hydroelectric power is becoming
Negotiator of Turkey, underscored the special unreliable. Cotton crops in Tajikistan may not receive
relationship and cooperation Turkey has with Central the irrigation they need. Kazakhstan, he said, has just
Asia based on the fact that the origins of many Turkish signed an agreement with neighbouring countries to
people come from that area. “I strongly believe a lot provide energy resources in exchange for water
more can be done to strengthen relationships in the resources during the summer months. In addition,
region. They have a lot of common interests and have there is a greater level of cooperation between
a lot to gain by cooperating.” Babacan also described Kazakhstan and Europe through a framework agreed
the importance of oil and gas pipelines and a railway to in a 2005 memorandum of understanding. Several
that would connect Central Asia to Europe via Turkey. participants emphasized the importance of resolving
“This will be important to make Central Asian the status of the Caspian Sea; without such resolution
countries more connected to the Western world.” future developments will be impaired.

Mohamed Nahavandian, President, Iran Chamber of Deputy Prime Minister Khojamyrat Geldimyradov of
Commerce, Industries and Mines (ICCIM), Islamic Turkmenistan said his country has embarked on a
Republic of Iran, confirmed: “There are very real programme of economic reform aimed at attracting
reasons to have more cooperation in the region.” The outside capital not only to exploit its vast oil and gas
bursting of the financial bubble in the US means reserves, but also to initiate reform in new sectors
“global capital will want to have more destinations.” such as tourism, textiles, energy derivatives and food
Growing doubts about globalization as a result of the processing.
crisis will mean more attention is paid to regional
cooperation. “In our region, there are a lot of giant The market potential is huge, particularly if it stretches
projects that could be invested in if everyone joins out to the Middle East, where economic activity
hands,” he said. continues apace and exports to Central Asia are
rising. Exports from Central Asia to the Middle East
Many political leaders called for deeper cooperation have risen by more than tenfold from 1997 to 2006.
across the region and beyond. Energy is likely to be The countries of the Gulf are important investors in
the currency of a new Silk Road, but there are Central Asia. At the same time, fears of a brain drain
opportunities for cooperation in regional development from the region could materialize as talent is attracted
across a range of economic sectors – industry, to the wealth of the Gulf.
agriculture and services – and good prospects for
attracting extra-regional capital to help finance them. Markets depend on infrastructure. China is already
There is also a strong outlook for increasing recreating the Silk Road eastward, with its investment
cooperation in health, education, energy and mining. of US$ 100 billion in building roads and railways to
Although the region is oil and gas rich, economic open up remote Central Asia and Turkey to the rest of
diversification is vital – and small markets hinder the world. More than 20,000 kilometres of rail track
diversification. will be built in the coming decade to bring Chinese
goods into Central Asia and carry oil and metals to
The groundwork has been laid for such cooperation.
China.
Yerbol Ornybayev, Deputy Prime Minister of
Kazakhstan, noted that water levels in Kyrgyzstan are



Energy and resource security hinges on managing Geopolitics have long been a wild card. “The energy
geopolitical, economic, social, technological, policies that we have are deeply embedded in
ecological and even geological risks. Central Asia, geopolitics,” reckoned Ethan B. Kapstein, Paul
Russia and the Middle East may have abundant Dubrule Professor of Sustainable Development,
supplies but the logistics of getting them to European INSEAD, France. As Poland, a major producer of coal,
markets are fraught with complexities and hazards. was locked behind the Iron Curtain during the Post-
“The resources are massive,” said Jay Johnson, World War II reconstruction of Europe under the
Managing Director of Chevron Europe, Eurasia and Marshall Plan, the US hooked the continent on Middle
Middle East Exploration and Production, Eurasia SBU, Eastern oil in alignment with its own geopolitical
referring to untapped opportunities in Kazakhstan interests. With the collapse of the Soviet Union and
where he is based. “But the technological difficulties the end of the cold war, “today, we are in a very
associated with them, combined with the remoteness, different geopolitical framework,” Kapstein explained.
make for a very difficult environment to bring them to “We really are in a multipolar world.”
market.”
As a result, new sources of energy have opened up;
According to Katherine Hardin, Senior Director and demand from fast-growing economies in Asia such as
Head, Russian and Caspian Energy, Cambridge China, and in Europe, particularly in Eastern Europe
Energy Research Associates (CERA), USA, to achieve and Turkey, has increased sharply. While Russia has
real energy security involves ensuring supply, demand become a key supplier of oil and gas, its use of the
and delivery. The security of supply is a major concern pipeline spigot as a foreign policy tool and its conflict
for Europe and Turkey, while Russia and other with Georgia in August have raised concerns about
producers in Central Asia and the Middle East want to energy security in the international community, most
be sure that the demand from Europe and Turkey is acutely in Europe. Georgian Foreign Affairs Minister
strong. All sides have an interest in keeping transport Ekaterine Tkeshelashvili suggested that Georgia’s
routes open and establishing new reliable ones. emergence as a rival conduit for oil to Western Europe
was a factor in Russia’s incursion in her country.
Infrastructure deficiencies are a pressing problem.
Chevron, for example, is using thousands of railway On energy matters, the interdependence between
tankers to transport Kazakh crude oil because Europe, Russia and Central Asia has clearly
pipelines are at maximum capacity. Building new deepened. Kazakhstan’s Vice-Minister of Energy and
conduits will take decades, huge investment and Mineral Resources Bolat Akchulakov told participants
cooperative agreements that will require lengthy and that Central Asia is ready to be an energy source for
tricky negotiations. “We are going to need stronger both East and West, cooperating not only in oil and
partnerships among developers, consumers and host gas but in other areas including nuclear power. Like
governments, and probably more leadership from suppliers in the Middle East, Central Asian players are
these governments in setting a framework for future eager to diversify beyond petroleum. According to
developments,” Johnson explained. Akchulakov, Kazakhstan has 20% of the world’s
uranium reserves.


“The goal of reliable, affordable energy is becoming
increasingly difficult to achieve.”

Jay Johnson, Managing Director, Chevron Europe, Eurasia and Middle East Exploration and
Production, Eurasia SBU, Kazakhstan

“When we look at technology, we find
new ways to discuss energy security.”

Waldemar Pawlak, Deputy Prime Minister and Minister of
Economy of Poland

“The energy policies that we have are Turkey, meanwhile, is likely to be a critical bridge, an
integral player in helping to bring new sources of oil
deeply embedded in geopolitics.” and gas to European markets. Because of its strategic
position and its own energy needs and capacity,
Ethan B. Kapstein, Paul Dubrule Professor of Sustainable
Turkey may emerge as a major source of hydroelectric
Development, INSEAD, France power for Europe. “This could be of enormous
potential, especially if the grid is connected to
Europe,” said Ahment C. Dördüncü, Chief Executive
On the demand side, diversification of supply sources
Officer of Haci Ömer Sabanci Holding.
is also essential. Europe should strengthen its internal
energy position, said Fatih Birol, Chief Economist at
Turkey could also play a crucial role in addressing the
the International Energy Agency. The continent should
water stress problems of Central Asia. The ongoing
diversify the technologies driving electricity generation
debate on the impact that the use of water for biofuels
and sources of natural gas, partly through the
has on food production and the prices of staples such
expanded use of liquified natural gas (LNG). Europe
as corn and rice has underscored how great the
needs to address its energy relationship with Russia.
problem of water stress is across regions.
“We cannot replace Russia,” Birol acknowledged. “But
we should create competitors to Russia, and within
Russia.” Russia, he argued, should be encouraged to
Oil and Gas in Europe and Central Asia
diversify its economy to mitigate the risks it faces from
a sharp decline in oil and gas prices and, in turn, The region's energy needs are larger than its reserves
address its own concerns about the security of energy
Share of world proved reserves/consumption, 2007

40%
demand.
Other Europe and Eurasia

EU15
30 Norway
The world, Birol concluded, needs to continue Central Asia

investing across the energy value chain – in oil, gas Russia
20
and alternative energy. Lower oil prices, however,
discourage investment, while concerns over climate
10
change have taken a back seat since the financial
crisis broke, possibly tempering zeal for investment in
0
renewable energy sources. It is essential that Oil reserves Oil consumption Gas reserves Gas consumption

producers, transporters and consumers engage each
other to overcome geopolitical tensions in their mutual Source: BP Statistical Review of World Energy 2008

interest, said Georgian Energy Minister Alexander
Khetaguri. Consumer countries, in particular, have to
be more active in building bridges with producers and
transporters. China is a good example. Eager to
secure its energy and commodity needs to fuel
growth, the Chinese have become closely engaged in
Central Asia, Africa and Latin America.


Turkey: Taking the Lead

During the meeting, many participants called on “It is time for East and West to develop
Turkey to provide a much-needed anchor – mitigating
a new way of looking at each other.”
the risks of security, energy and demography in both
Europe and Central Asia. Turkey is expected to
Recep Tayyip Erdogan, Prime Minister of Turkey
galvanize economic activity in the region. The country
is certainly reaching out to its neighbours and beyond,
making both political and economic overtures. Events
have converged in 2008 to ballast the country’s
Turkey’s proactive diplomacy to diffuse the Russia-
position as a broker.
Georgia conflict in concert with the EU’s efforts
demonstrated both the special influence that Turkey
Even while it pursues its candidacy for the EU, Turkey
would bring to Europe and the convergence of Turkish
has been successfully strengthening its ties with other
and European geopolitical and economic interests.
regional groups. In October 2008, Turkey became a
Both sides need each other. EU membership would of
member of the UN Security Council for two years,
course open up European markets further to Turkish
winning 151 votes out of a total 192 UN members.
companies and open Turkey to even more investment
That Turkey mustered such widespread support is a
from Europe. It would integrate Turkey and its 72
reflection of the country’s increasing weight in
million people into a Europe that is growing rapidly in
international politics and the growing confidence of the
global influence.
international community. It is an active member of the
Organization of Islamic Conferences and the Ad Hoc
But Turkey will not be held for ransom over the EU’s
Liaison Committee. Turkey also recently strengthened
membership criteria and argues that the EU has as
ties with the African Union, the Gulf Cooperation
much, if not more, to gain from Turkish accession.
Council and the League of Arab States.
Further, Turkey’s proposal for a Caucasus Stability and
Cooperation Platform to bring countries in the region
Indeed, Turkey has become an important bridge
together to discuss economic, political and security
between East and West, between developed and
issues showed that, while it supported and
developing economies, between Europe and Central
complemented EU efforts to resolve the Georgia crisis,
Asia and the Middle East, between Europe and
Turkey is taking its own leading role in the Central
Russia. Over the years, Turkey has built up a track
Asian and Caucasus regions. Of particular significance
record as an honest broker in the several regions it
is its contribution to the Middle East peace process by
straddles. It pivots easily from maintaining long-
leveraging its long-standing relationship with Israel and
standing links with Israel to cultivating connections in
its ties with the Arab world.
the Middle East, including with Iran, and from
sustaining an important strategic relationship with the
United States to building ties with Russia and China. It
is literally and figuratively at Europe’s doorstep, a
geographic gateway and a country aspiring to
become a member of the European Union.


“Imagine a region in which you have “The GCC [the Gulf Cooperation
totally new relations between Council] is looking at Turkey very
Azerbaijan and Armenia, and Armenia positively. This is the time when you can
and Turkey. The consequences for attract foreign direct investment from
trade, for communications, for the GCC.”
transport, for energy – and the
Ibrahim S. Dabdoub, Group Chief Executive Officer, National
opportunities are huge – so we will do
Bank of Kuwait, Kuwait, and Chair of the Arab Business Council
our best to normalize the situation as
soon as possible.”

Ali Babacan, Minister of Foreign Affairs and Chief Negotiator of
Turkey's Trade Partners
Turkey
Trade with China and Russia rose from 5.8% of Turkey's trade in 1999 to 15.1% in 2007

100%
Share of total imports and exports with Turkey

Rest of world

“By using its special position in the region, Turkey is 75 China

contributing more and more to stability and peace in Russia

the region and further away,” said Turkish Foreign Middle East
50 US
Affairs Minister Ali Babacan. As Turkey takes its EU
position on the UN Security Council, “our theme is 25

‘security for all’ by using peaceful methods and
diplomacy to solve problems,” he added. 0
1999 2003 2007*

* through three quarters
While it suffered through a financial crisis a few years
ago, Turkey has managed to put its economic house Source: IMF

in better order. Turkish government and business
Turkey is highly unlikely to become an economic
leaders, as well as many foreign investors, were
burden for the EU. Rather, it has the potential to
confident that Turkey would weather the gathering
become a regional economic powerhouse. Jean
global financial storm well. “As a strongly emerging
Lemierre, former EBRD president who is currently
economy, Turkey will strengthen the European Union,”
Senior Adviser to the Chairman, BNP Paribas Group,
declared Günter Verheugen, Vice-President and
said Turkey has been “a very competitive market and
Commissioner, Enterprise and Industry, in the
is even more so today.” BNP Paribas is engaged in a
European Commission. “It will not be an economic
“real partnership” with Turkey and is expanding its
burden for us.”


“Turkey has played and can continue to play the role of a
very good regional broker. Regional brokers are a healthy
supplement, but they are absolutely not a substitution for
international organizations such as the UN.”

Mowaffak Al Rubaie, National Security Adviser, National Security Council, Iraq

“Turkey has all the ingredients to be a regional powerhouse. It
has shown that it is willing to be a broker of peace in the
region. The biggest challenge will be to see who will win the
tug of war for influence and resources in this country. In the
past we have leaned towards the West, but today we have a
lot more alternatives.”
Ali Y. Koç, President, Koç Information Technology Group, Koç Holding, Turkey; Young Global Leader

business. “We have a very good reform of the banking Turkey is also in a strategic position for corporations.
system. It is a well-balanced economy with growth Alparslan Korkmaz, President, Investment Support
supported by domestic consumption and exports.” and Promotion Agency of Turkey, pointed out that
international companies use Turkey as a base for
Ahmet Ashaboglu, Chief Financial Officer, Koç running operations in up to 90 other countries.
Holding, Turkey, reminded participants that although Microsoft, for example, manages its operations in 80
Turkey’s labour force is not cheap, it is highly qualified other countries out of Turkey. Within a radius of four
and very productive. There is a pool of qualified hours by plane, there is a market of 1.3 billion
management talent, and Turkey is positioned at the consumers.
centre of a market that represents roughly 1.2 billion
people. Foreign direct investment in Turkey has skyrocketed
from around US$ 1 billion until 2005 to more than
Promising growth sectors include energy, US$ 20 billion in 2007. There is a lot more space for
infrastructure, transport, the automotive industry, investment both in Turkey and across the region. As
consumer products, agriculture, mobile telephony and one participant noted, there is a need for “urgent
information communication technology (ICT). Speaking investment” in infrastructure and transportation
as a major player in industry, Ashaboglu noted that the networks.
potential to develop the automotive market remains
very high.
Central Asia's Trade with the Middle East
For many, Turkey remains an attractive country in
Imports have risen sharply since 2003, while exports accelerated in 1999
which to do business. Feyhan Yasar Kalpaklioglu,
$4,000
Chairperson of Yasar Holding, Turkey, a large food and
beverage company, noted that despite the financial
Central Asia exports/imports to/from

3,000
Middle East (US$, millions)

crisis “there is still a strong export potential” in the Exports
consumer products sector. Ali Y. Koc, President of the
Koc Information Technology Group, and a Young 2,000

Global Leader, shared her optimism. “Our natural Imports

resource is food. We can distribute fresh food to a 1,000

market of 600 million; we have the water and we have
the climate,” he said. 0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: IMF


Acknowledgements

The World Economic Forum would like to thank Prime Minister Recep Tayyip Erdogan of Turkey and his
government for their generous support in co-hosting the World Economic Forum on Europe and Central Asia.

The World Economic Forum wishes to recognize the support of the following companies as Partners or
Supporters of the World Economic Forum on Europe and Central Asia:

Strategic Partners

Audi
Chevron Corporation
The Coca-Cola Company
Credit Suisse
Dogus Group
KPMG
Lenovo Group
Microsoft
Morgan Stanley
PricewaterhouseCoopers
Satyam Computer Services
Xenel Group

Regional Partners

Ithmaar Bank
Koç Holding
Sabanci Holding

Meeting Supporters

Abraaj Capital
Gulf Finance House
International Finance Corporation


Contributors

Børge Brende is Managing Director, in charge of Governments, Regional Activities and Constituents at the
World Economic Forum. Christophe Weber is Head of Europe and Central Asia at the Forum. The World
Economic Forum on Europe and Central Asia was under his direct responsibility, with Benita Sirone,
Associate Director, Europe and Central Asia, Programme Development; Chantal Adamson, Senior
Specialist Events and Meeting Coordinator; and Thomas Berglund, Senior Community Relations Manager,
Europe and Central Asia.

The report writers, Alejandro Reyes and Dianna Rienstra, worked with Nancy Tranchet to produce the
report.

The World Economic Forum would like to express its appreciation to the summary writers for their work at
the meeting. Session summaries are available on the World Economic Forum website (www.weforum.org).

Associate Director, Editing: Nancy Tranchet

Design and Layout: Kamal Kimaoui, Associate Director, Production and Design

Photographs: Serkan Eldeleklioglu, Ozan Atasoy, Bora Omerogullari


This publication is also available in electronic form on the World Economic Forum website at the
following address:

World Economic Forum on Europe and Central Asia report:
http://www.weforum.org/pdf/summitreports/europecentralasia2008 (HTML)

The electronic version of this report allows access to a richer level of content from the meeting,
including photographs, session summaries and videos of selected sessions.

The report is also available as a PDF:
http://www.weforum.org/pdf/summitreports/europecentralasia.pdf (PDF)

Other specific information on the World Economic Forum on Europe and Central Asia, Istanbul,
Turkey 30 October – 1 November can be found on the following links:

KnowledgeConcierge
http://www.weforum.org/europecentralasia2008/knowledgeconcierge
Programme http://www.weforum.org/europecentralasia2008/programme
Session summaries http://www.weforum.org/europecentralasia2008/summaries
Interviews with participants http://www.weforum.org/europecentralasia2008s/interviews
Webcasts http://www.weforum.org/europecentralasia2008/webcasts
Members’ area http://www.weforum.org/europecentralasia2008/members
Photos http:// http://www.weforum.org/europecentralasia2008/photos

The World Economic Forum is an independent
international organization committed to improving
the state of the world by engaging leaders in
partnerships to shape global, regional and
industry agendas.

Incorporated as a foundation in 1971, and based
in Geneva, Switzerland, the World Economic
Forum is impartial and not-for-profit; it is tied to
no political, partisan or national interests.
(www.weforum.org)

World Economic Forum on Europe and Central Asia2008

Related slideshows

More Related Content

What's hot

What's hot (16)

Viewers also liked

Viewers also liked (11)

Similar to World Economic Forum on Europe and Central Asia2008

Similar to World Economic Forum on Europe and Central Asia2008 (20)

More from WorldEconomicForumDavos

More from WorldEconomicForumDavos (19)

Recently uploaded

Recently uploaded (20)

World Economic Forum on Europe and Central Asia2008