Uzbekistan Türkiye Kazakhstan Turkmenistan Kyrgyzstan Tajikistan Iran Ukraine Russian Federation Belarus Afghanistan Pakistan India China Mongolia Georgia Armenia Azerbaijan Moldova We refer to the South Caucasus and Central Asia (SCCA) collectively, as they are the strategic lands that historically played a key role in linking Europe and the Far East. Our analysis seeks to understand both regions in terms of their interconnectedness. When appropriate, we differentiate in the infographics as follows:As South Caucasus (SC) states: • Armenia• Azerbaijan• Georgia South Caucasus and Central Asia? As Central Asian (CA) states:• Kazakhstan• Kyrgyzstan• Tajikistan• Turkmenistan• Uzbekistan In 1904, British geographer Mackinder wrote about “the geographical pivot of history,” suggesting – with imperialist connotations – that control of “Eastern Europe” was vital to world domination. His thinking, known as the Heartland Theory , was influenced by the context of sea and land powers in war, but it has been revived in geopolitics since the 1990s. Russia’s war in Ukraine, a nation rich in critical resources, has exposed today’s strategic rivalries and intensified Russian-Chinese relations. It has also made the SCCA states more eager to diversify their relations, not least to secure their independence. “Must geography be destiny”? Population 2021 2028 GDP PPP 2022 2028 Trade Volume 2022 2021 2010 2028 2000 1990 China EU USA SCCA 2021 The SCCA’s 93m residents represent about 1.2% of the global population. The most populous country in the region is Uzbekistan (34m), followed by Kazakhstan (19m) and Azerbaijan (10m). Türkiye’s 85m residents make it the largest Turkic country – which helps it to project political and economic relevance. Russia Türkiye South Caucasus | Central Asia Due to often very adverse topography, many SCCA states are sparsely populated. Although the total area of SCCA equals that of the EU, its population density (22/km²) is only one-fifth of the EU’s (105/km²). The most extreme case is Kazakhstan, the world’s ninth-largest country, with a population density of only 7/km². With the exception of Georgia and Armenia, Islam is the predominant religion; 84% of the population in Central Asia is Muslim. The eight SCCA states’ share in the world population 1.2 European Union 5.7% 4.3% 18.0% 447m people lived in the world’s most economically and politically integrated regional market in 2021. China 1.42bn people lived in China in 2021, making it the world’s largest market in terms of con-sumers. However, due to gaps in regional development, its potential has not yet been fully tapped. USA 340m people lived in the United States of America in 2021. Due to its high purchasing and consump-tion power, the US econ-omy is one of the world’s most attractive markets. Russia In 2021, 145m people lived in Russia, which has a notable difference in life expectancy between women (75 years) and men (66). 1.8% 1.0 Türkiye 2021 2010 2028 2000 1990 SCCA 2028 Between 1992 and 2021, the total population of SCCA grew from 69m to 93m. By 2028, the region is projected to surpass the 100m mark. In just seven years, the populations of the five Central Asian nations are expected to increase by around 10%. While the population of Türkiye is steadily increasing, it is not keeping pace with world population growth. China EU USA Türkiye Russia The analysis of key demographic indicators shows that SCCA has a demographic profile highly favorable for economic growth over the next three decades. Factors such as relatively faster population growth, a young median age, a large working-age population in percentage terms, and a declining dependency ratio will give the SCCA states significant opportunities for economic growth. The eight SCCA states’ share in the world population 1.2 South Caucasus | Central Asia European Union 5.3% 4.2% 16.9% Low birthrates mean the EU relies on net immigration to offset population decline. Projections for 2028 indicate that the EU’s population will remain stable, at 447m people. Immigration will continue to be a key issue. China China’s one-child policy led to lower fertility rates. Now, China’s share in the global population is decreasing like those of the US and the EU, but at a quicker rate. USA Although the US population is projected to grow by 12m by 2028, its relative share of the global population will decrease. 1.0 Russia Russia is facing a demographic crisis, which its war against Ukraine is expected to exacerbate. The population decline predicted for 2050 will have a devastating impact on its labor force. 1.7% Türkiye 2022 2010 2028 2000 1990 USA EU China SCCA 2022 Türkiye Russia GDP trends highlight three patterns. The US and the EU have parallel trajectories, but the US weathered the 2008 financial crisis better. China has experienced an unprecedented GDP rise since 2000.SCCA’s GDP is trailing behind that of Russia, an economy relying mostly on fossil-based revenues (which accounted for 45% of the federal budget in 2022), and that of Türkiye, a country enjoying robust economic growth despite struggling with inflation for years. In 2022, SCCA’s GDP reached 1.5tn USD, comprising 0.9% of global GDP. In the South Caucasus, Azerbaijan’s GDP (0.2tn USD) clearly stands out in relation to those of Georgia and Armenia.Kazakhstan (0.6tn USD) and Uzbekistan (0.3tn USD) contribute more than 80% to the GDP of inner Central Asia, while the economies of Turkmenistan, Tajikistan and Kyrgyzstan lag far behind. The eight SCCA states’ sharein global GDP (purchasing power parity) 0.9 South Caucasus | Central Asia Russia Russia’s GDP reached 4.8tn USD in 2022. Due to a volatile currency exchange rate, GDP as measured in USD fluctuates sharply. 2.9% European Union 14.8% 15.6% 18.4% China USA China’s GDP reached 30.2tn USD in 2022, cementing its position as a global economic powerhouse. This growth reflects China’s econ-omic reforms, infrastructural devel-opment and status as the world’s primary manufacturing hub. The EU’s GDP stood at 24.4tn USD in 2022. Over the years, both enlargement and the departure of the UK have influ-enced its economic metrics. The most prominent shift was an 18% decline from 2019 to 2020, mainly due to the combined pressures of Brexit and the COVID-19 pandemic. In 2022, the US had a GDP of 25.8tn USD. Despite set-backs and the COVID-19 pandemic, the US economy has shown remarkable resilience, always bouncing back. 2.0% Türkiye 2022 2010 2028 2000 1990 USA EU China 2028 By 2028, China is set to solidify its lead as the world’s premier economy in GDP terms, with the US and EU trailing at a considerable distance.Since Russia’s economy is heavily influenced by the unforeseeable long-term outcome of its war against Ukraine, any projections are subject to a high degree of uncertainty. In contrast, SCCA’s projected GDP growth appears to be much more solid. Türkiye’s GDP is projected to be 40% bigger than in 2022, potentially translating into a marginal gain in global share. SCCA Türkiye Russia The GDP of the SCCA region is projected to be 45% larger than in 2022. However, one cannot expect this to translate into an increased global share right away. Since independence, the SCCA nations’ economic reforms have been deliberately gradual and selective. The states that have fared best have benefitted from commody booms. Although both exports and imports have grown significantly, SCCA countries remain vulnerable to economic shocks owing to their reliance on exports of raw materials, a restricted circle of trading partners and/or a negligible manufacturing capacity. The eight SCCA states’ share in global GDP (purchasing power parity) 0.9 South Caucasus | Central Asia Russia Russia's GDP is projected to be 29% bigger than in 2022, a 0.2 pp loss in global share. However, risks from its war in Ukraine, sanc-tions and capital flight are difficult to predict. 2.7% European Union 13.4% 14.9% 19.4% China USA China's GDP is projected to be 46% bigger than in 2022, translating into a 1.1 pp gain in global share. EU GDP is projected to be 24% bigger than in 2022, translating into a 1.4 pp loss in global share. US GDP is projected to be 30% bigger than in 2022, translating into a 0.8 pp loss in global share. 2.1% Türkiye 2022 2008 2003 1990 2020 2015 USA EU China Global trade has experienced a roller-coaster ride. The vibrant expansion that started in 2003 was disrupted by the 2008-2009 recession. The trade landscape has since bounced back from the COVID-19-related disruptions of 2021.Russia’s trade patterns roughly mirror these movements, but on a much smaller scale. In comparison, SCCA experienced only a very modest increase in trade volume over the same period. Türkiye’s importance as a trade hub is confirmed by its trade volume of 0.56tn USD. 2022 SCCA Türkiye Russia With a trade volume of 0.32tn USD in 2022, the SCCA countries only participate in global trade to a limited extent. The South Caucasus’ strategic location between the Caspian and Black Seas as well as Azerbaijan’s raw materials offer the potential for a sharp increase in trade. The five Central Asian nations suffer from being land-locked. They have not yet fully benefitted from the rail and road network supporting the trade corridors bet-ween China and Europe. Inconsistent regulations, border controls and tariffs are hindrances, and transport by sea is often more competitive than by land. The eight SCCA states’ share in global trade volume 0.6 South Caucasus | Central Asia European Union 11.7% 10.5% 11.5% In 2022, the EU’s trade volume reached 5.89tn USD, under-scoring its global trade pro-minence in a head-to-headrace with China. Brexit nota-bly impacted this, as the EU parted ways with a signifi-cant trade contributor. China China attained a trade volume of 5.97tn USD in 2022. Unlike in the US, exports drive China's trade, making up approximately 60% of its total trade volume. USA The US had a trade volume of 5.30tn USD in 2022, put-ting it in third place behind China and the EU. Although a dominant figure in global trade, the US heavily relies on imports, nota-bly from China and the EU. Russia In 2022, Russia’s trade volume reached 0.83tn USD, making it the world’s 12th-largest exporter. 1.7% 1.1% Türkiye Bilateral Agreements Russia China Türkiye EU ITA Interim Trade AgreementBIT Bilateral Investment Treaty FTA Free TradeAgreementPTA Preferential Trade Agreement CEPA Comprehensive and Enhanced Partnership AgreementAA/DCFTA Association Agreement/Deep and Comprehensive Free Trade Area FTAR Free Trade AreaCU/EIA Customs Union & Economic Integration AgreementEAIA Eurasian Investment Agreement PCA Partnership and Cooperation AgreementEPCA Enhanced Partnership and Cooperation Agreement 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 23 ArmeniaAzerbaijanGeorgiaKazakhstanKyrgyzstanTajikistanTurkmenistanUzbekistan 22 ? ? ? ? Overview agreements Different types of agreements characterize 30 years of cooperation between the newly independent SCCA countries and the four major actors.1990s: FTAs with Russia mark the beginning, followed by BITs with China and Türkiye. EU PCAs are not signed until the late 1990s. EU member states start concluding BITs with SCCA nations in 1989 (not depicted).2000s: China, Türkiye and the EU do not sign new agreements with SCCA nations apart from the Türkiye- Georgia FTA (2007). Russia continues its efforts to forge stronger ties with the Common Economic Zone (2004). 2010s: Russia’s regionalization efforts culminate in the EAEU in 2014. Of note are the EU’s AA/DCFTA with Georgia signed in 2014 as well as a China-Georgia FTA signed in 2017. 2020s: Türkiye and the EU continue efforts to improve the legal basis of trade relations through PTAs (Türkiye) and EPCAs (EU). ITA Interim Trade AgreementBIT Bilateral Investment Treaty FTA Free TradeAgreementPTA Preferential Trade Agreement CEPA Comprehensive and Enhanced Partnership AgreementAA/DCFTA Association Agreement/Deep and Comprehensive Free Trade Area FTAR Free Trade AreaCU/EIA Customs Union & Economic Integration AgreementEAIA Eurasian Investment Agreement PCA Partnership and Cooperation AgreementEPCA Enhanced Partnership and Cooperation Agreement 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 23 ArmeniaAzerbaijanGeorgiaKazakhstanKyrgyzstanTajikistanTurkmenistanUzbekistan 22 ? ? ? ? Russia: Regional integration efforts Russia’s formal trade relations with the SCCA nations are mainly based on regional agreements today, after pursuing bilateral FTAs in the 1990s.Kazakhstan was the only SCCA country to join Russia’s first regional FTA, the Common Economic Zone Agreement (signed in 2003; entered into force in 2004).Kazakhstan, Kyrgyzstan, and Tajikistan are parties to the EAIA (signed in 2008; entered into force in 2016). Turkmenistan, Uzbekistan and Azerbaijan signed BITs with Russia (entered into force between 2010 and 2015).Armenia, Kazakhstan, Kyrgyzstan and Tajikistan signed the Russian-led treaty on a FTAR between the CIS nations in 2011 (entered into force between 2012 and 2015).Armenia, Kazakhstan and Kyrgyzstan joined Russia’s EAEU in 2014, whose CU/EIA entered into force in 2015. ITA Interim Trade AgreementBIT Bilateral Investment Treaty FTA Free TradeAgreementPTA Preferential Trade Agreement CEPA Comprehensive and Enhanced Partnership AgreementAA/DCFTA Association Agreement/Deep and Comprehensive Free Trade Area FTAR Free Trade AreaCU/EIA Customs Union & Economic Integration AgreementEAIA Eurasian Investment Agreement PCA Partnership and Cooperation AgreementEPCA Enhanced Partnership and Cooperation Agreement 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 23 ArmeniaAzerbaijanGeorgiaKazakhstanKyrgyzstanTajikistanTurkmenistanUzbekistan 22 ? ? ? ? China has been forging formal trade and investment ties with SCCA nations early on, largely based on BITs that entered into force between 1994 and 2011. The Kyrgyzstan-China BIT came first, in 1992, followed within two years by agreements with Armenia,Kazakhstan, Turkmenistan, Tajikistan, Georgia and Azerbaijan.The Uzbekistan-China BIT was signed and entered into force in 2011.Georgia is the only SCCA country to have an FTA with China (in place since 2017/18). China: Project-based investments ITA Interim Trade AgreementBIT Bilateral Investment Treaty FTA Free TradeAgreementPTA Preferential Trade Agreement CEPA Comprehensive and Enhanced Partnership AgreementAA/DCFTA Association Agreement/Deep and Comprehensive Free Trade Area FTAR Free Trade AreaCU/EIA Customs Union & Economic Integration AgreementEAIA Eurasian Investment Agreement PCA Partnership and Cooperation AgreementEPCA Enhanced Partnership and Cooperation Agreement 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 23 ArmeniaAzerbaijanGeorgiaKazakhstanKyrgyzstanTajikistanTurkmenistanUzbekistan 22 ? ? ? ? Türkiye’s formal investment and trade relations are based on BITs. Except for Armenia, all SCCA nations signed BITs with Türkiye between 1992 and 1996 (entered into force between 1995 and 1998). Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan have since updated their BITs (entered into force between 2012 and 2021). Georgia, which also has an FTA in place with Türkiye, has the highest level of regulatory harmonization of any SCCA country. With an https://www.trade.gov.tr/free-trade-agreements/georgiaamendment effective since 2021, the parties have extended some of the preferential rules to products containing EU-sourced materials.Kazakhstan, Azerbaijan and Uzbekistan signed PTAs with Türkiye in 2020 and 2022 (entered into force in 2021 for Kazakhstan and Azerbaijan and in 2023 for Uzbekistan). Türkiye: Selective integration ITA Interim Trade AgreementBIT Bilateral Investment Treaty FTA Free TradeAgreementPTA Preferential Trade Agreement CEPA Comprehensive and Enhanced Partnership AgreementAA/DCFTA Association Agreement/Deep and Comprehensive Free Trade Area FTAR Free Trade AreaCU/EIA Customs Union & Economic Integration AgreementEAIA Eurasian Investment Agreement PCA Partnership and Cooperation AgreementEPCA Enhanced Partnership and Cooperation Agreement 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 23 ArmeniaAzerbaijanGeorgiaKazakhstanKyrgyzstanTajikistanTurkmenistanUzbekistan 22 ? ? ? ? The EU is striving to update the legal foundations of its trade relations with SCCA nations, which had been largely based on PCAs signed between 1995 and 1996.Under pressure from Russia, Armenia did not follow Georgia’s path, but opted for a CEPA with the EU, key parts of which have been provisionally applied since 2018.Kazakhstan signed an EPCA with the EU in 2015, which entered into force in 2020. The EU started negotiations on similar, more comprehensive trade agreements with Azerbaijan and Kyrgyzstan (2017), Uzbekistan (2019) and Tajikistan (2022). The EU did not sign its EPCA with Kyrgyzstan until 2024 owing to human rights concerns. An EPCA with Uzbekistan was signed in 2022.All SCCA countries have BITs in place with at least several EU member states. Negotiations concluded 2019, signed June 2024 Negotiations on a new comprehensive agreement launched Feb 2017 Negotiations launched Dec. 2022 Initialed 2022, being prepared for signature EU: Two-phased engagement Trade Relations 2022 European Union China Russia Central Asia South Caucasus Share of total trade with the EU South Caucasus Central Asia 45.6%54.6% 2.8 46.0% 37.9% 5.3 4.9 3.1 Kazakhstan Azerbaijan Uzbekistan Georgia Armenia Other USA China Russia Türkiye SCCA Other59.3% 1.6% 15.6% 15.4% 5.0 3.6 European Union China Russia EU-SCCA Trade Oil- and gas-rich Kazakhstan (46.0%) and Azerbaijan (37.9%) are by far the EU’s most important trading partners in SCCA. Uzbekistan (5.3%), Georgia (4.9%), and Armenia (2.8%) show percentages in the lower single-digits.Kyrgyzstan, Turkmenistan and Tajikistan together make up only 3.1% of the EU’s trade with SCCA. EU Major Trade Ties Both the US and China are the EU’s most important partners in terms of total trade volume. Trade with Russia, still at 5.0% in 2022, has declined since then. With a 1.6% share, SCCA has no significant weight in EU trade, but strategic importance as a source of energy imports. While the EU has roughly equal trade ties with SC and CA states, China and Russia trade significantly more with CA nations. 213bn 57bn USD 660bn 242bn 67bn 25bn Central Asia South Caucasus Share of total trade with China South Caucasus Central Asia 5.7%94.3% 13.4% 12.0% USA EU Russia 3.0% Türkiye 0.6% SCCA Other69.8% 1.2% 41.8% 15.0% 3.5 5.7 Kazakhstan Tajikistan Uzbekistan 20.9% Kyrgyzstan Turkmenistan 13.2% South Caucasus 45bn 29bn USD 562bn 285bn 76bn 112bn European Union China Russia China-SCCA Trade To an overwhelming degree (94.3%), the five CA countries are China’s foremost trade partners. The three SC countries account for 1.9% each, with a collective share of only 5.7%.Turkmenistan exports significant amounts of natural gas to China. In 2022, China accounted for 65% of Turkmenistan's total trade. China Major Trade Ties China’s trade relations strongly focus on exports (57%), which account for 76% of China’s trade volume with the US and 66% of that with the EU. Trade with Russia has been growing since then.The SCCA region accounts for merely 1.2% of China’s trade volume. However, numerous Belt and Road Initiative projects show China’s ongoing strategic interest in the region. Central Asia South Caucasus Share of total trade with Russia South Caucasus Central Asia 18.0%82.0% 36.0% 16.6% USA EU Türkiye SCCA Other32.9% 5.7% China 5.0 3.8 54.1% 8.6% 2.4 4.1 Kazakhstan Armenia Uzbekistan 19.1% Kyrgyzstan Azerbaijan 6.4 Georgia 5.3 Tajikistan Note: No data on Russia-Turkmenistan trade 9bn 65bn 202bn USD 60bn 62bn 33bn European Union China Russia Russia-SCCA Trade With a total trade volume of 54.1%, Kazakhstan is Russia’s most important trading partner in the region,followed by Uzbekistan (19.1%), Azerbaijan (8.6%) and Kyrgyzstan (6.4%). These four countries account for almost 90% of Russia-SCCA trade. SC countries only account for 18% of total trade. Russia Major Trade Ties In 2022, the EU and China were Russia’s most important trading partners. Trade with China was almost evenly split between exports and imports, while trade with the EU was heavily skewed towards Russian exports (76%).With 5.7% of total trade, SCCA countries are major players in terms of trade with Russia, accounting for more trade than both Türkiye (5.0%) and the US (3.8%). FDI Outward Stocks    South Caucasus | Central Asia 2013 2017 2021 ArmeniaAzerbaijanGeorgiaKazakhstanKyrgyzstanTajikistanTurkmenistanUzbekistan FDI by the EU FDI by China FDI by Russia FDI by Türkiye Many SCCA economies still have features that are a legacy of the Soviet economic system, such as strong dependencies on natural- resource exports as well as a lack of both diversification and higher value-added production. With limited domestic capital to invest, they must attract FDI to develop their economies. The EU is the biggest investor in SCCA, with massive FDI stocks in Kazakhstan (56.2bn USD). Companies, such as Italy’s ENI, have major stakes in Kazakh oil and gas fields. The biggest economy in CA also attracts most of Russia’s (2.8bn USD) and China’s FDI (7bn USD). Outside Kazakhstan, the investments of EU companies are mainly in the SC and Uzbekistan, while China is the main foreign investor in the other CA countries.Türkiye’s FDI is significant for Turkmenistan (0.1bn USD) and Azerbaijan (5.3bn USD) – both Turkicstates. 1.8bn USD 12.2bn 5.1bn 66.3bn 1.1bn 1.2bn 0.4bn 2.5bn 69.6bn USD 9.3bn USD 5.8bn USD 6.1bn USD KAZ56.2 AZE6.6 GEO4.1 UZB TJK KGZ KAZ7.0 GEO KAZ2.8 ARM AZE5.3 ArmeniaAzerbaijanGeorgiaKazakhstanKyrgyzstanTajikistanTurkmenistanUzbekistan FDI by the EU FDI by China FDI by Russia FDI by Türkiye KAZ67.2 AZE12.8 GEO2.3 ARM2.0 KAZ7.5 TJK KGZ UZB KAZ3.2 ARM Over time, Russia has lost its pivotal position in Central Asia to China, but it remains the second-largest investor in Tajikistan (0.4bn USD) and Kyrgyzstan (0.2bn USD). It reclaimed its dominant position in Armenia in no small part due to the small nation’s inclusion in the EAEU. After 2018, EU companies withdrew their main investments from Armenia, which had just increased. However, FDI data for the EU can be misleading, as attribution depends on the location of a company’s headquarters and flows are hard to trace.After the BRI launch in 2013, China dramatically boosted investment activities in CA. While increasing its stocks in Kyrgyzstan, Tajikistan and Turkmenistan, it replaced the EU as the top investor in Uzbekistan. In the SC, China increased its FDI stock in Georgia.Türkiye’s FDI in Azerbaijan dropped from its peak of 8.2bn USD in 2014 to 0.5bn USD in 2017. 84.6bn USD 12.4bn USD 5.7bn USD 1.5bn USD 3.4bn USD 13.6bn 3.5bn 78.1bn 1.6bn 2.1bn 0.8bn 1.2bn AZE ArmeniaAzerbaijanGeorgiaKazakhstanKyrgyzstanTajikistanTurkmenistanUzbekistan FDI by the EU FDI by China FDI by Russia FDI by Türkiye KAZ3.6 ARM Despite heavy-handed integration attempts via the EAEU and the EAIA, Russian companies have not been able to keep up with FDI by Chinese and EU competitors.China is developing the economic potential in its western neighborhood and expanding the corridor to its European markets through substantial infrastructure investments. SCCA countries that lack resources to modernize or to merely maintain outdated infrastructure welcome these efforts. EU investment mainly stems from resource-extracting companies. However, many SCCA nations may seek a strategy for long-term growth by developing manufacturing and services sectors.According to data from 2022, Turkish investment stocks in Turkmenistan have fallen, showcasing how companies (in this case, Turkish ones) may struggle to keep up with their governments’ political ambitions. 69.1bn USD 14.8bn USD 6.4bn USD 2.6bn USD KAZ61.4 AZE3.5 GEO2.2 ARM TKM UZB TJK UZB2.8 KGZ KAZ7.5 GEO TKM 1.9bn USD 4.5bn 3.6bn 73.6bn 1.9bn 2.3bn 1.2bn 3.7bn TJK UZB2.8 KGZ KAZ7.5 GEO TKM KAZ1.1 AZE TJK Connectivity Antagonisms Region Russia China Türkiye EU