Introduction Centrally located at the intersection of trade, economic, and transport corridors, Fergana Valley has the potential to drive economic development in Central Asia. It includes some of the most productive agricultural lands in the Kyrgyz Republic, Tajikistan and Uzbekistan and has a relatively high level of industrial development compared to other parts of the region. However, its progress has been held back by multidimensional risk factors, including tensions on border delineation and division of shared natural resources and infrastructure—a situation worsened by overlapping crises including climate change, environmental degradation, growing population density, rural poverty, and the COVID-19 pandemic. The policy paper, Fostering Prosperity in the Fergana Valley through Economic Development, Cross Border Trade, and Investment, proposes solutions to barriers to trade, investment, and connectivity in several border crossing points throughout Fergana Valley that are adversely affecting integration and regional value chain development. Context The valley's location, unique resource endowments of land and water, better developed infrastructure, agriculture, and skillful labor force make it an attractive hotspot to drive economic development through regional integration and create positive spillover effects for enhanced prosperity in Central Asia. The development of joint integrated markets along the regional value chain is viewed by experts as a measure that can unlock huge comparative trade advantage, especially for the horticulture sector, to transform the region’s unrealized economy. Among the three countries occupying the Fergana Valley, Uzbekistan is in the best position to promote regional integration, given its strong economic potential and unique geographic location. Uzbekistan's provinces (Fergana, Namangan, and Andijan) are the largest, most developed parts of Fergana Valley and have strong technological and resource capacity in developing export-oriented regional horticulture value chains. Uzbekistan's market reforms (i.e., opening borders, removing non-trade barriers, and limited decentralization) that started in 2017 also enhanced its horticulture sector’s competitiveness. Agricultural reforms focused on the removal of price and market distortions for horticulture export and the promotion of outward-oriented agriculture. The country’s potential in horticulture, if realized, can boost economic growth, generate larger export revenues, and create better paying jobs. Year-round horticulture—especially for greenhouses and post-harvest processing and marketing activities—also benefit women who comprise a substantial number of full- and part-time workers in agro firms and horticulture farms. Regional Economic Integration and Value Chain Development Regional value chains are vital to the development of Central Asia given their impact on sustainable job creation, prosperity, and poverty alleviation. Well-established value chains represent critical links that create positive externalities for a regional economy. Local firms and other economic players can be involved and can benefit from access to both regional and external markets—enhancing their competitiveness, productivity, and diversification. Regional value chains also promote intra-regional trade through a network of local producers and market users, improving economic integration among common competitive products and service markets such as agriculture, tourism, and selected types of manufacturing. Studies show that the Kyrgyz Republic, Tajikistan, and Uzbekistan have ideal agroclimatic conditions and strong comparative advantage in producing a wide range of internationally competitive horticulture products. In particular, there are opportunities to create a regional hub for integrated apricot harvesting, production, and marketing in Fergana Valley. Proximity to large export markets makes developing integrated horticulture value chains in the area more attractive. The Kyrgyz Republic and Tajikistan have strong potential to develop regionally integrated value chains while Uzbekistan leads in the international trade of apricots, table grapes, sweet cherries, and melons. Open market reforms in Uzbekistan are considered as the best-case scenario and a positive policy option to transform Fergana Valley into a more thriving, better integrated, and prosperous area that drives regional growth and integration in Central Asia. Uzbekistan’s provinces in Fergana Valley could serve as a hub of regional horticulture value chain integration that could connect producers and suppliers from the Kyrgyz Republic and Tajikistan with Uzbekistan’s producers and exporters. The success of economic integration and value chain development in the cross-border provinces in Fergana Valley—specifically in the horticulture sector—hinges on several key factors: Political commitment and support from the central governments of the Kyrgyz Republic, Tajikistan, Uzbekistan to address the barriers to regional integration and create enabling business environment; Strong engagement and initiatives of local provincial governments; Ability of private sector representatives (SMEs, agriculture processing firms, transport and logistical businesses, local communities) to have stronger trust and willingness to establish integrated value chains); and Technical and financial support from large businesses and international development agencies. Institutional Arrangements Institutional arrangements are needed to realize a positive policy scenario for Fergana Valley’s economic integration and value chain development. Among the proposed solutions are the following: Local governments should set up a permanent regional platform for cooperation and coordination among regional governments and develop a roadmap to address contested issues and develop mechanisms for shared infrastructure management. International development agencies must increase the focus of their assistance on supporting regional development programs and consider setting up regional implementation units working on cross-border projects. International donors should localize project implementation, ensure close involvement and benefit-sharing among local populations and SMEs, and explore other potential spillovers to maximize the local benefits for regional economic development and cross-border cooperation. Private sector should set up joint business councils and regional business associations among SMEs and entrepreneurs from cross-border provinces to ensure regular interactions. Stakeholders can share and explore opportunities to develop joint investment projects and value chains; discuss pending issues and barriers to trade and cooperation, border crossing, regulatory, and non-trade barriers; and prepare joint investment proposals and attract investments in the region. Governments and international stakeholders should place significant attention and allocate investments to promote the socio-economic development of Fergana Valley. Focus on the management of human, technical, and financial resources. Among the three cross-border countries in the valley, Uzbekistan’s government has been allocating the most significant public investments to promote rural economic and infrastructure development, and job creation in the area. At present, government resources are insufficient to develop Fergana Valley. Most projects are implemented at the central level—often with inadequate consideration of regional institutional arrangements over conflict-sensitive shared management, maintenance, and operations; cross-border trade and customs policies; and citizen engagement. As such, international development partners must provide significant investments to support socioeconomic development, rehabilitation of physical infrastructure including roads and power facilities, job creation, and private sector development in the cross-border region. Expected Benefits Continuous liberalization of trade policy reforms, harmonization of border and customs administration and procedures, and logistical improvements can yield significant economic benefits in Fergana Valley, including: Enhanced trade promotion and investment attractiveness; Reduced time and cost of cross-border trade; Enhanced competitiveness of local producers, export promotion (revenues for the local and central budget, and incomes for local producers as well as the expansion of agriculture and agro-processing production and jobs creation resulting from the facilitation of new investments (both public and private) into regional cross border horticulture value chains; and Creation of economic opportunities/markets for the local communities and enterprises in Fergana Valley resulting from positive externalities to related sectors and services including in the areas of tourism and hospitality, transport and logistics, and financial institutions, among others. Capitalizing on the opportunities from recently-approved economic and transport corridors supported by various international financial institutions and bilateral parties, local stakeholders in Fergana Valley—including governments, the private sector, and SMEs—can promote the integration of specific markets; develop joint manufacturing hubs along the entire value chains including in horticulture; and explore other forms of mutually-attractive cross-border economic cooperation to reinforce the competitiveness of the regional economy. Apart from both direct and indirect economic benefits, measures to promote regional integration and value chain development in Fergana Valley are expected to provide stronger foundation for peace and stability in the region, offer greater incentives to resolve long-standing issues of joint management of shared natural and economic resources peacefully and constructively, reduce conflict potential in the valley, and enhance trust and social exchange among cross border communities. Recommendations Fergana Valley represents a complex interplay of risk factors and significant—yet, largely unexplored—opportunities to drive growth and prosperity in adjoining provinces and the whole of Central Asia. To achieve the outcomes outlined above, the following specific measures are proposed. For central and local governments: Intensify policy dialogue at the provincial level; Set up a permanent regional cooperation platform, develop a roadmap to address contested issues, and develop mechanisms for shared infrastructure management (irrigation, roads, land, border control, ease of transit); Localize existing national free trade agreements based on agreements among the bordering countries, both at the central and provincial government levels; and Enforce free and unrestricted cross-border regime through constant monitoring, and by lowering barriers to cross-border trade and investment flows within the valley. These can help develop cost-efficient and reliable regional supply chains for essential goods (i.e., food products), lower prices, and enhance competitiveness of the local products. For international development agencies: Gradually shift from physical infrastructure-focused projects to a whole of economic corridors approach. This should increasingly involve “soft” elements (i.e., capacity development, sustainable and locally-managed operations and maintenance arrangements, jobs creation, and livelihoods), and the engagement of the private sector and local communities as partners in project implementation; Localize country development assistance to Fergana Valley provinces as part of the development partners’ strategies—in consultation with central governments; Increase assistance to cross-border economic and infrastructure initiatives, including regional mechanisms for project implementation; and More actively support regional cross-border proposals involving public–private partnerships and private sector-implemented mechanisms, and partnerships among private sector, business associations, and horticulture producers from countries in Fergana Valley. For private sector representatives: Create joint business councils and regional business and private sector associations involving SMEs and entrepreneurs to ensure regular interactions where stakeholders can showcase opportunities to develop joint investment projects and value chains; discuss pending issues and barriers to trade and cooperation, border crossing, regulatory and non-trade barriers; prepare joint investment proposals; and attract investments; Enhance trade and regional competitiveness of goods and value chains in the sectors where trade and compatible integrated manufacturing/processing could be further supported—based on private sector and SMEs initiatives; and Develop regional agri-processing branded products and market these in regional and global expos and similar venues. Resources S. Kurbanov. 2021. Fostering Prosperity in the Fergana Valley through Economic Development, Cross Border Trade, and Investment. Xinjiang: CAREC Institute. Ask the Experts Sobir Kurbanov Senior Program Manager, Center for International Private Enterprise Sobir Kurbanov is a Senior Program Manager at the Center for International Private Enterprise in Washington, DC. Prior to this, he worked with various development agencies in Central Asia, including the World Bank. He holds a degree in Economic Policy and Management from the University of Strathclyde, Glasgow with focus on public sector economics and international finance. Follow Sobir Kurbanov on Central Asia Regional Economic Cooperation Institute (CAREC) The Central Asia Regional Economic Cooperation Institute (CAREC) is an intergovernmental organization promoting economic cooperation in Central Asia and along the ancient Silk Road through knowledge generation and sharing. 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