Cross-border connectivity means lifelines – and risks. Historically, whenever great powers have had overlapping spheres of influence, there is almost always conflict. The nations of the South Caucasus – Armenia, Azerbaijan and Georgia – and Central Asia – Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan – share a geopolitical reality between the EU, Russia and China, as well as rising regional powers. Together, they form a pivotal region for Global Gateway, the EU strategy aimed to unlock the benefits of connectivity. But different understandings of interconnectedness show the limits of “connectivity” as a concept.

Although trade does not necessarily bring political change, economic cooperation remains an important building block not only for asserting interests and gaining influence, but also for facilitating mutually beneficial exchange and fostering stability and peace. In the South Caucasus and Central Asia (SCCA), four main integration projects overlap – the EU, the Eurasian Economic Union (EAEU), the Shanghai Cooperation Organisation (SCO) and the Organization of Turkic States (OTS).

SCCA Evolving Strategic
This infographic examines SCCA nations’ relations with the major actors active in their region.

Driven by very different motives, they impact how countries shape inter-state relations. All have a trade component. In times of revived power competition over nothing less than the liberal world order and critical natural resources, it is therefore just as crucial to assess the scope for EU South Caucasus and Central Asia economic cooperation as it is to anticipate conflicts.

Addressing global challenges through new EU-SCCA dynamics

Putin’s full-fledged war against Ukraine has revealed Russia’s readiness to unleash violent disorder. China remains ambiguous in its actions and intentions. And Türkiye’s transactional behaviour is disturbingly unpredictable. Amid these dynamics, ambitious leaders of regional powers like Iran and India, but also from rising nations like Azerbaijan, are seeking their own advantage.

In December 2021, shortly before Russia started its full-scale war against Ukraine, the European Commission launched Global Gateway. The initiative is largely seen as a response to China’s Belt and Road Initiative (BRI).

Global Gateway’s primary goals are to enhance international connectivity through investments in infrastructure, digital technology, the energy sector and sustainable development. By facilitating trade, promoting economic growth and strengthening diplomatic ties, Global Gateway aims to solidify the EU’s status as a key global actor.

Baselines for SCCA relations with the EU, Russia, China and Türkiye

Some see in “network politics” – or so-called connectography – above all the chance to benefit from the complexities of connectedness and a diffusion of power. Others argue that Russia and China – together considered “Eurasia’s authoritarian heartland” – will challenge rules- and value-based cooperation more profoundly than in the past.

The authors of the infographic examined SCCA nations’ relations with the major actors active in their region, initially comparing levels of trade and investment, based on data from 2021 and 2022.

SCCA holds strategic significance, not least because of its abundance of critical raw materials. But the EU is a sought-after trading partner beyond energy-centric relations, particularly as an exporter of chemical products, machinery and manufactured goods for the geographically closer SC countries and, to a lesser extent, the CA nations.

Conversely, China is the CA nations’ main trading partner. From Beijing’s perspective, CA is not only a trade corridor to European markets, but a crucial source of raw materials essential for its economy. Another important Chinese objective is to open local sales markets for its own products.

Trade patterns with Russia differ significantly. Russia exports more oil and gas to SCCA than it imports, yet trade with SCCA is still relatively balanced across different sectors. This reflects Russia’s long-standing economic ties with the region, which benefit Russian efforts to circumvent sanctions imposed on it in response to its attack on Ukraine.

Dramatic shifts in the export of key goods could already be observed when comparing 2021 to 2022. Armenia is just one case in point: Mainly exporting tobacco, alcohol and agricultural products to Russia until 2021, its trade with Russia tripled in 2022 because it could supply sanctioned technology and machinery.

For a more long-term picture of economic engagement by the major actors, we compared the financial stakes that companies from Russia, China, Türkiye, and the EU have made in SCCA. For Global Gateway to succeed, private sector integration is essential.

The German Chamber of Commerce and Industry (DIHK) identified six main points in a Global Gateway position paper, arguing that it is necessary, for example, to incentivise SMEs and reduce investment barriers, expand strategic partnerships to secure raw material supplies and set international standards to foster innovative value chains and ensure equitable access to essential resources.

The legacy of the Soviet system left SCCA nations with a structurally impaired economic capacity. Most were unable to make the essential investments in economic development, and foreign direct investment (FDI) became crucial. China recognised SCCA’s huge and urgent need for infrastructure projects and investments early on.

Our analysis of FDI stocks of EU-based companies in SCCA reveals a focus on investments in the SC and Kazakhstan, mirroring patterns observed in trade. The most significant investors are major industry players from the energy sector.

These players are engaged in natural gas and oil projects, as well as striving to facilitate the transition to sustainable energy sources. Apart from the Kazakh energy sector, just a few firms are willing to invest in CA. The small, though imperfect, SC democracies, rather than the resource-rich CA autocracies, are attracting EU-based FDI.

Conversely, Chinese investors continue to focus on CA. Modernising the young nations’ outdated infrastructure may be driven by Beijing’s objective to expand the Middle Corridor to European markets, but it is satisfying urgent needs in CA. In the SC, a China-led consortium has acquired a stake in the strategically important Georgian Black Sea deep-water port of Anaklia, which is in keeping with the BRI’s big-picture objectives.

Russian FDI continues to be relatively limited, despite integration and investment agreements within the EAEU framework. Nevertheless, in Tadjikistan (0.4 billion USD) and Kyrgystan (0.2 billion USD), Russian investors occupy the second position in the end of 2021. Meanwhile, in Armenia, where state structures and the economy have been closely linked to Russia in many ways, investors from Russia still dominate.

Turkish investors have increasingly withdrawn from the region after many years of relatively high FDI stocks in Turkmenistan and Azerbaijan. Political ambitions and economic reality do not always dovetail. For example, Turkish construction companies encountered obstacles in their efforts to work with the Turkmen government.

Finally, it has been revealing to take a closer look at the type of agreements that SCCA nations have made with Russia, China, Türkiye and the EU since gaining independence.

China negotiated bilateral investment treaties early on, laying the formal groundwork for the high-profile outbound infrastructure investments that were later grouped under the BRI. By 1995, it had bilateral investment treaties in place with all SCCA countries, except Uzbekistan.

After 1995, only two China-SCCA agreements were recorded in multilateral databases. One reason could be that China was shifting to alternative frameworks and more informal modes of cooperation with SCCA, as neither FDI nor trade data seem to have been strongly affected by the outdated trade rules on paper. Additionally, apart from Uzbekistan, Turkmenistan and Azerbaijan, all SCCA countries are members of the World Trade Organization which provides its own multilateral trading system.

Free trade agreements (FTAs) pursued by Russia with several SCCA countries in the 1990s could be interpreted as an attempt to maintain old ties by using the tools of a globalist legal order. Since the 2000s, however, Moscow seems to have altered its strategy, favouring regional integration to position itself as the centre of South Caucasus and Central Asia economic relations.

These efforts eventually led to the creation of the EAEU in 2014, which was presented as both an economic and political framework, including a customs union and an economic integration agreement. Although Moscow denies it, Russia did not approve of its neighbours pursuing FTAs with both itself and the EU, instead pressuring them to join the EAEU’s customs union with its common external tariffs.

Having laid the initial foundations for economic cooperation with most SCCA countries in the 1990s, Türkiye appears to be leveraging its relations with nations that assert their Turkic identity to update trade relations through the OTS, signing preferential trade agreements with Uzbekistan in 2023 and Kazakhstan in 2021.

The EU signed the first partnership and cooperation agreements with SCCA countries in the mid-1990s and started updating them in the mid-2010s. However, every time the EU has readjusted its policy strategy toward SCCA, it has struggled with the same paradox of trying to root cooperation in shared commitments to common rules, while shying away from deeper integration, given the risk that governments will not respect these rules.

Today, the EU seems to be on the fence when it comes to translating the principles of the liberal economic order – notably, the rule of law – into binding relations with SCCA countries. This is worrying, because, as our analysis shows, both sides have something to gain.

The SCCA nations are clearly facing political, economic, social and security challenges. This increases the need for complex reforms that would benefit from openness, transparency and fair competition. Moreover, in many nations, a progressive segment of society wants closer relations with the EU.

In this difficult situation, the EU should deliver on its promise to not treat the SCCA countries as just another geopolitical "cornerstone between Europe and Asia". Instead, the EU should demonstrate that it views these countries as valuable partners in their own right, with their own unique histories, deserving of understanding and respect. This is what can set the EU apart from its competitors.

Can connectivity politics be a welcome tool for multilateralism?

While the EU and its member states intend to invest not only in SCCA infrastructure and industrial development, but in good governance, Russia, China and Türkiye are pursuing different efforts aimed at forging relationships that are clearly not based on an equal footing, despite communicating the contrary.

This is a different view of connectivity in pursuit of one’s own interests only. As such, it cannot be taken for granted that there will be a voluntary sharing of resources and workforces or good cooperation to solve challenges that are ideally, if not necessarily, tackled together, such as the impact of climate change.

Russia seeks to portray itself as a champion of the struggle to dismantle the US-dominated world order. However, its war against Ukraine demonstrates that a propensity for violent disorder continues to be a part of Moscow’s vision for a multipolar world.

Just how much China will go along with this remains to be seen, but those striving for stability should be ready to protect the networks and the orders they build. For now, it must be kept in mind that Russia can only continue to play a meaningful role on the international stage as long as there is a fraught geopolitical environment.

Global Gateway in the SCCA region has great potential to bring different policies, initiatives, dialogue platforms and strategies together and align internal and foreign policies. It is important that Global Gateway is more than a PR announcement.

More specifically, EU foreign policy strategies should dovetail with those of its member states – and these should, in turn, dovetail with EU internal policy, including when it comes to EU competitiveness.

The problem with EU foreign policy remains that, as in its direct neighbourhood, it encounters many people in partner countries who are willing to embrace EU policy objectives, but their semi-authoritarian governments may be primarily striving to hold on to power.

We recommend a two-pronged approach. On the one hand, the EU should foster cooperation to the greatest extent possible while leveraging the advantages of strategic partnerships and of a decentralised, globalised world.

This is a world in which networks facilitate development, even if they are transactional in nature. On the other hand, the EU should remain vigilant and build on its own strengths and competitive advantages – but without counting on other powers to behave in a rational manner.

About the authors

Bruno Augsburg worked as an intern at Bertelsmann Stiftung, where he supported the Europe’s Future Programme in the Sovereign Europe (May to July 2024) and Europe's Economy project (March to May 2023). Bruno studied International Economy and Development at the University of Bayreuth. He holds a Master's degree in Development Economics from the University of Göttingen.

Anna Hautmann is Project Manager for Rebuild Ukraine at the German Chamber of Commerce and Industry (DIHK), working on economic reconstruction efforts. She is an economist specialised on Central and Eastern Europe with extensive experience in policy evaluation and advanced econometric analysis. Anna writes here in a personal capacity. The views expressed represent her private opinion and not necessarily the position of the German Chamber of Commerce and Industry (DIHK).

Miriam Kosmehl is Senior Expert on Eastern Europe and EU Neighbourhood at the Bertelsmann Stiftung.

Alexander Weber studies German and European Law at the Humboldt-Universität zu Berlin. His interests include constitutionalism, the rule of law, and the law of foreign relations. He is a graduate of the Akademie Auswärtiger Dienst (Foreign Service Academy).

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