The Steppe #4
Montfort Eurasia's newsletter covering Central Asia and the Caucasus
Hello, and welcome back to The Steppe, your newsletter bringing you the latest business- and investor-relevant happenings in the South Caucasus and Central Asia, brought to you by Montfort Eurasia.
In this edition, we look at these key developments:
China's strategic pivot towards cultivating soft power in Central Asia
Mongolia's digital revolution
Turkmenistan’s road revamp
The World Bank’s renewed support for the CASA-1000 Initiative
Please don’t hesitate to contact us for feedback and tips at eurasia@montfort.london
China's strategic pivot: Cultivating soft power in Central Asia
China has long recognized the strategic importance of Central Asia and the Caucasus, having made high profile investments as part of its Belt and Road Initiative (BRI) for international infrastructure development. However, faced with growing diplomatic competition, the country now is trying to shore up its position using soft power too.
Launched in 2013, the BRI, through which the country’s institutions provide credit for large scale infrastructure projects, has backed a number of regional projects including roads, railways, ports and pipelines across Tajikistan, Kyrgyzstan, Kazakhstan and Azerbaijan. The Initiative has received criticism for its appearance of ‘debt trap diplomacy’ over nations’ abilities to service their debts; as an example, Beijing now holds more than half of Tajikistan’s external debt.
Yet, China is facing increasing competition to become a key partner for regional governments. Recent geopolitical tensions at the edge of the region, including Russian aggression in Ukraine and the return of the Taliban to Afghanistan, and a raft of reforms in countries including Uzbekistan and Kazakhstan, mean many regional powers are looking to cash in on the region’s growing significance and gain diplomatic relevance.
The United States has been increasing its engagements through forums like the C5+1, President Macron has made two regional visits, and Middle Eastern players such as Qatar, UAE, and Saudi Arabia are becoming increasingly visible. Multi-lateral development banks such as the EBRD and ADB have also quickly expanded their presence in the region.
While the BRI is still a major priority for China, the country has had to diversify its tactics to become a more attractive partner, including pivoting its strategy to emphasize soft power to deepen its influence and build closer, cultural ties to the region.
The pivot involves a broad spectrum of initiatives aimed at fostering cultural, educational, and economic ties. Cultural exchanges and the promotion of Chinese language and culture through Confucius Institutes have become cornerstones of the strategy, aimed at building a positive image of China and fostering mutual understanding. Educational exchanges and scholarship programs for Central Asian students to study in China are boosting cultural ties.
Both sets of program are designed to create a foundation of goodwill and understanding among the younger generations in Central Asia. Furthermore, a number of Central Asian countries are currently engaging in discussions with China to implement visa-free travel arrangements, most recently implemented in Georgia, which will promote tourism, freedom of movement and, China will hope, deeper cultural ties.
Furthermore, China is using the close ethnic and cultural heritage of the Central Asian ‘Turkic’ nations to build bridges.  The Head of Xinjiang Uyghur Autonomous Region – Uyghurs are considered to be ethnically, linguistically and culturally close to Uzbeks – visited Uzbekistan to meet with President Mirziyoyev in early March. The visit heralded trade agreements and promised closer and deeper cooperation. In March, Central Asian ambassadors participated in the establishment of the Secretariat of China-Central Asia Mechanism in Xi’an, building on previous meetings between heads of state to foster closer collaboration.
It is yet to be seen if Chinese cultural ties will take off within Central Asia and the Caucasus. Yet, China’s shift to soft power diplomacy reflects the country’s recognition of the increasing geopolitical and economic importance of the region, and the need to explore new avenues amid global competition for influence.
Mongolia's digital revolution: Satellites and Starlink
Mongolia's vast territory and open plains have long made it difficult to achieve comprehensive digital connectivity. But, through the use of modern technologies, the country is now able to accelerate its growth.
Earlier this year Mongolia achieved a significant milestone in its digital transformation with the launch of ONDO Space satellites OWLSAT-1 and OWLSAT-2 via SpaceX, and the introduction of Starlink services. The developments epitomize Mongolia's third-neighbour foreign policy, a policy aimed at strengthening ties internationally beyond Russia and China for developmental projects, including its domestic space economy.
Elon Musk’s Starlink services were launched in Mongolia in early March, after the country granted two licenses to SpaceX in 2023. Starlink will operate as an internet service provider using low-orbit satellites and promises to expand high-speed internet access to millions of users throughout the country, who are often in remote, isolated regions.
Mongolia is itself working on the Chinggis Satellite in partnership with French-Italian JV Thales Alenia Space, which will establish a national satellite system to crate existing gaps in connectivity.
With only 23.8% of Mongolia's territory currently covered by traditional telecommunications services, the nation has struggled to provide internet access to its residents, especially those in remote and nomadic areas. The partnership with Starlink is seen as a significant step in addressing these issues, increasing broadband connectivity, and assisting in critical infrastructure, such as improving disaster management, emergency response, and medical services.
This is particularly important in Mongolia, a country prone to natural disasters such as floods, droughts, and wildfires. These disasters have become more frequent in recent years due to climate change, often exceeding the government's ability to respond, making it crucial to improve connectivity and disaster management capacities.Â
Harnessing new technologies, Mongolia will attempt to leapfrog traditional solutions to rapidly accelerate its digital penetration. This, it hopes, will accelerate the country’s development and foster a more digitally capable future. Â
The great Turkmen highway
Turkmenistan's push to revamp its road transport system and meet global standards could be pivotal for its aspirations to contribute to regional trade. But, despite some progress, significant challenges remain.Â
In late February, officials from the International Road Transport Union (IRU) and Vepa Hajiyev, the new Permanent Representative of Turkmenistan to the United Nations Office at Geneva, discussed the country’s road transport priorities. They underlined the need to combine modern road and port infrastructure with more flexible solutions to enhance Turkmenistan’s potential as a regional trade and transit hub.Â
Turkmenistan has already taken some measures to streamline bureaucracy, tap into regional connectivity initiatives and boost economic integration in recent years, such as digitising customs procedures and establishing secure TIR transport lanes at border crossings. The country has also ratified several international conventions and agreements related to the frontier control of goods, aiming to streamline transport.Â
Turkmenistan's roads are often in poor condition, and the fatality rate per inhabitant in traffic accidents has historically been high, but is improving. In February, the officials discussed the need to enhance training for transport managers and drivers, aligning with international quality standards for improved transport efficiency and road safety.
However, a recent EU study indicates the need for further development before Turkmenistan can fully attempt to contribute to the region’s connectivity drive. Numerous challenges persist, including funding issues that delay highway projects, and trade barriers including tight visa requirements and stringent state control.Â
These barriers may prove too high for the country to overhaul its transport infrastructure system. Yet, if the benefits to the country’s economy prove evident, the government may be incentivised to crate the correct conditions for progress.
The World Bank renews support for CASA-1000
The World Bank has decided to restart support for CASA-1000, a $1.2 billion project to connect the power grids of Kyrgyzstan, Afghanistan, Tajikistan and Pakistan.
The CASA-1000 project, designed to enable the export of hydro power-generated electricity, aims to both reduce costs for consumers and help drive the clean energy transition. Tajikistan is expected to provide 70% of the power, with the remainder supplied by Kyrgyzstan. With construction nearing completion in Kyrgyzstan, Pakistan, and Tajikistan, developers have said funding should be resumed for the critical Afghanistan section of the project, which will connect Pakistan with the remaining participants, to prevent the whole scheme from becoming a stranded asset.
CASA-1000 aims to trade 1,300 megawatts of surplus hydropower between the participating countries, enhancing regional energy interconnectivity and sustainability. The Afghan segment will be implemented with ring-fenced measures to manage revenues independently of government administration systems.
The project highlights the growing importance of renewable energy sources, such as hydropower, which offers new business opportunities and is supported by mechanisms like feed-in tariffs.
However, challenges loom over the completion of vital projects like Tajikistan's Roghun hydropower plant and Kyrgyzstan's Kambarata HPP-1, with escalating costs and the need for international support. Nonetheless, the World Bank's endorsement marks a significant stride in the region's commitment to energy cooperation.
Stat of the month
$800 million: Kazakhstan and Uzbekistan lead Central Asia in IT growth, with their combined IT exports hitting over $800 million. Uzbekistan's IT Park exports grew to $344 million in 2023, while Kazakhstan's IT sector saw exports leap to over $500 million, with Astana Hub contributing $315 million of this total.
What we’re reading
For Single Mothers Working as Train Conductors by Laura Esther Wolfson in Longreads
What’s Behind Central Asia’s Umrah Fever? by Niginakhon Saida in The Diplomat