COMMON INVESTMENTS

In recent years, the member states of the Organisation of Turkic States (OTS) have been establishing a strategic alliance based on a solid economic foundation, including joint energy and transport projects, aiming at investments and stronger cooperation. International experience shows that the best way of funding infrastructure and other capital-intensive projects is through the establishment of special regional investment funds based on contributions from the founding countries. The OTS countries have also embarked on this path by establishing the Turkic Investment Fund (Türk Yatırım Fonu, TYF).

Economic fraternity

In recent years, Türkiye, Azerbaijan and the Turkic-speaking states of Central Asia have been building new platforms to expand trade and investment cooperation, minimise external risks and enhance energy and food security. Such cooperation among the Turkic-speaking states is especially relevant today, given the global geopolitical rift caused by the war in Ukraine. This factor has negatively affected the entire Eurasian continent, leading to problems associated with transportation, logistics, fuel and energy supplies in a number of non-resource industries.

Maximum intensity of integration processes was achieved last November at the Istanbul summit of the OTS, when the participants outlined the priorities of the long-term development concept of Turkic states and adopted a baseline document, Turkic World 2040, which identifies the economic areas best suited for expanding business cooperation. It is primarily about improving the efficiency of regional transport and logistics corridors, easing customs barriers to expand cross-border commerce, introducing mechanisms for preferential trade, and adopting other measures to promote the sustainable development of the Caspian-Black Sea region.

New geopolitical realities are encouraging the OTS states and their partners in Asia and Europe to expand infrastructure along several routes of the Middle Corridor through the Central Asian (CA) region and onwards through Azerbaijan, Georgia and Türkiye towards Europe. Azerbaijan, Kazakhstan, Georgia and Türkiye are actively engaged in the expansion of respective port and rail infrastructure. For example, Kazakhstan started the development of a container hub at the Aktau Sea Port FEZ, as well as the construction of new railway tracks and the electrification of the Dostyk-Moyinty rail section. The construction of the China-Kyrgyzstan-Uzbekistan railway with access to the Caspian ports will begin soon. Similar activities are underway in Azerbaijan: the Baku International Sea Port in Alat and the railway infrastructure of the Baku-Tbilisi-Kars corridor (BTC) are being expanded. In parallel, the railways in eastern Türkiye are being upgraded, while the construction of logistics terminals in Kars, as well as other utilities along the BTC route are nearing completion.

All cross-border infrastructure and transport projects are financed with public funds and partly with loans from international donor organisations.

OTS states also plan a number of other joint activities, including the simplification of customs procedures and introduction of a preferential trade regime. The goal is to increase trade between the member states.

In addition, the OTS member states are working on an agreement on free trade, attracting joint investments in manufacturing, services, agricultural works, including joint access to the third-country markets, creating continuous value chains in high-tech industrial clusters, etc.

Common money

In order to optimise the funding of these projects, OTS member states are considering the possibility of forming special investment funds, provided that they are co-capitalised. This practice has long been used successfully around the world. Various regional economic organisations create joint investment funds that finance cross-country infrastructure, industrial and service projects, as well as provide risk capital to small and medium-sized enterprises (SMEs).

Such collective entities operate in the European Union too. Member states of the BRICS and ASEAN have their own investment funds. Mercosur, the organisation that brings together the economies of several South American countries, has a similar structure. As a rule, capitals of such funds are based on budgetary funds of the founding states. In some cases, the member states establish public-private partnerships and/or raise funds from the market. However, almost always the resources of such intergovernmental organisations are provided on concessional terms and for a relatively long period of time. 

The OTS member states intend to follow a similar path, currently exploring the prospect of establishing the Turkic Green Finance Council to expand the capitalisation of the green energy and economic market, address the climate agenda, etc. They also consider the available options for establishing a digitalisation centre for the OTS member states, as well as a joint venture fund to attract investment in start-ups, software companies, etc.

Key task

The first step to shape the region's future extensive financial architecture was the decision adopted at the November 2022 Samarkand summit to establish the Turkic Investment Fund. According to the agreement, the organisation will be headquartered in Istanbul and run by a president, a board of governors, a board of directors and a general director. Baghdad Amreyev, a Kazakh diplomat who served as the Secretary General of OTS in 2018-2022, will serve as the president of the TYF for four years.

It is planned to form the authorised capital of the TYF ($500 million) by equal contributions of five founding countries, i.e., Azerbaijan, Türkiye, Kazakhstan, Uzbekistan and Kyrgyzstan. In total, each state will contribute $100 million. Thus, the share capital will be divided into shares paid by each of these states ($350 million) and the attracted ones in circulation ($150 million). These shares will be paid in four instalments, each state paying $70m for paid-up shares and $30 for attracted shares.

The key objective of the TYF is to develop the economic potential of member states, to strengthen trade and economic cooperation, and to implement joint investment projects.

"The Turkic Investment Fund will be headquartered in Istanbul on the basis of equal investment contribution and equal voice in the Turkic world. The fund will contribute to the economic integration of the regional countries. In particular, companies operating in Turkic states will have easier access to funding," Turkish President Recep Tayyip Erdogan said to sum up the results of the Extraordinary OTS Summit, where the founding agreement of the TYF was signed.

The idea of creating a common financial institution (TYF) was supported by all members of the organisation. Two and a half months later the agreement on the creation of the TYF was approved by the president of Kazakhstan, and on May 30 the document was ratified by the Milli Mejlis (parliament) of Azerbaijan.

"The Turkic Investment Fund will finance both related, inter-state projects that contribute to the integration of the Turkic world, as well as internal projects that the country itself cannot implement entirely. Thanks to the fund, we can channel means to synchronise activities and projects in the countries of the region," Farhad Mammadov, head of the South Caucasus Research Centre, said.

It is expected that the prospects for trade and economic cooperation between the OTS countries will be announced during the Turkic Business Forum to be held in Kazakhstan in September 2023 ahead of the OTS Summit. The forthcoming events will examine aspects of the investment fund and outline the main projects to be funded.

In general, an investment fund of the Turkic states, and potentially a development bank, can play an important role in financing strategically important projects in the Turkic world.

In addition to supporting the establishment of the Turkic Investment Fund, Azerbaijan has also pursued a consistent policy of forming joint financial bodies with the OTS member states on a bilateral basis. Such as the recently established Azerbaijan-Uzbekistan Investment Fund and Azerbaijan-Kyrgyzstan Development Fund. The Azerbaijan-Türkiye  Investment Fund initiated by the Azerbaijan Investment Company OJSC and the National Welfare Fund of Türkiye is nearing completion.