CAREC Institute Held the Digital CAREC Virtual Policy Dialogue on Digital FDI Ecosystem

15 Mar 2023

On March 15, the CAREC Institute, in partnership with the Islamic Development Bank (IsDB) and the Asian Development Bank Institute, organized the Digital CAREC Virtual Policy Dialogue on the Digital FDI Ecosystem. Experts from the CAREC region were invited to present and discuss policy options arising from the CAREC Institute-IsDB research projects and identify areas for future research to promote further capacity building interventions and governance related to digital FDI in the CAREC region.

Mr. Kabir Jurazoda, Director of the CAREC Institute, stressed in his welcoming speech the importance of the digital economy for inclusive economic growth in the CAREC countries. Due to its landlocked position, Central Asia has limited access to fiber-optic routes and other digital infrastructure, leading to a lack of connectivity in this part of the CAREC region. Furthermore, the CAREC region has not yet fully benefited from the digital economy transformation. Outdated regulations, uncompetitive investment policies, varied digital infrastructure, the absence of a national digital platform agenda, heavy reliance on primary industries, and fragmented governance structure are examples of roadblocks to realizing the CAREC region’s potential. The prevailing digital gap/divide across the CAREC region drives these obstructions.

The CAREC Institute provides several knowledge products and services to the countries in the region. In partnership with the IsDB, the CAREC Institute published two reports on regional digital gap and the digital FDI ecosystem in the CAREC region. “These studies show that the CAREC countries have different levels of digitalization, some being champions and some having difficulties accessing the internet. This digital divide persists not only in digital infrastructure and access, but also in socio-economic factors such as the cost and quality of internet, overall investment climate, and digital security, which, in turn, affect the inflow of digital FDI to the region,” said Mr. Kabir Jurazoda.

The first session of the dialogue began with the presentation of the results of a joint recent study by the CAREC Institute and the IsDB on “Digital FDI Ecosystem in CAREC Region (Phase II).” Senior Research Specialist at the CAREC Institute, Dr. Asif Razzaq, described an inclusive ecosystem of the digital FDI and provided the results of the assessment of different deriving/inhibiting factors of the digital FDI in the CAREC region using five dimensions, such as i) New Digital Activities, ii) Digital Adoption, iii) Digital Infrastructure, iv) Digital FDI Restrictions, and v) Digital Promotion Tools. The study shows that Georgia, Kazakhstan, and People’s Republic of China are leading CAREC counties with a conducive digital FDI environment, as these countries represent lower restrictions on digital FDI in the CAREC region. Azerbaijan, Mongolia, Uzbekistan, the Kyrgyz Republic, and Pakistan report moderate scores. Tajikistan, Turkmenistan, and Afghanistan have the lowest scores than the CAREC regional average.

The study recommends considering regional integration as a main factor for digital FDI, since aligning digital regulations and policies across countries is of utmost importance to provide a conducive environment for foreign tech firms. The countries should promote the development and consolidation of venture capital and private equity sectors by building favorable investment climate, creating a venture capital legislative framework, offering platforms for settlement of investment disputes, reducing FDI sectoral restrictions, enforcing ICT trade agreements, reducing tariffs and taxes/corporate income tax, and implementing a dual taxation system.

Dr. Imed Drine, Lead Economist of IsDB‘s Cooperation and Capacity Development Department, presented policy recommendations and spoke about future directions for creating a robust digital FDI ecosystem. Countries should adopt a three-step approach by (i) improving the investment climate through both regulatory and non-regulatory measures, (ii) enhancing ICT infrastructure and connectivity at the regional level, and (iii) transitioning to a digital economy through the development of local talent and cross-border standardization. Dr. Imed Drine highlighted the importance of partnerships in strengthening digital FDI ecosystems. To support the basic ICT Infrastructure, governments can ensure the involvement of the private sector by developing an enabling environment for investment in ICT infrastructure, using PPP models, and adapting education strategies to enhance digital skills of people and businesses. Partnerships with civil society organizations will assist in prioritizing the social aspects of the digital economy. Intergovernmental coordination will help in the harmonization of regulations, cross-border data exchanges, cybersecurity, trade and investment promotion.

Following the presentations, the representatives of the CAREC member countries provided feedback on the research findings and their implications for policies, as well as expectations for future projects and recommendations on regional cooperation.

During the second session, the leading international experts from key international financial institutions engaged in an open dialogue addressing some issues related to digital FDI and provided feedback on the results of the CAREC digital research project. They spoke about activities which their respective organizations plan in digitalization and other relevant areas in the region over the next two years, and provided recommendations on measures that international institutions can take to ensure effective coordination in the region.

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