REGIONAL MARKETS

In the ten years since the breakup of the Soviet Union, the new independent states of Central Asian states have made efforts to develop betterbuild regional relationships and construct regional organizations to give them meaning. The latest organization, the Eurasia Economic Community, represents renewed determination by the states of the region to try to build the foundations for regional markets. Kazakhstan has affirmed its role as an important regional player in Central Asia, and it is likely to become the regional lynchpin in the next ten years, due to massive investments flowing into the oil and gas sector and its growing political relationships with major powers. The inflow of capital to Kazakhstan and the transportation routes from Kazakhstan through the surrounding region is likely to result in several states developing significant stakes in Kazakhstan's own continued development. A strong regional marketplace could thus emerge asinto a nexus centered around Kazakhstan's main cities. For strategic as well as logistical reasons, most businesses catering to the Greater Central Asian Market of 230 million (including the eight former Soviet Republics of the Caucasus and Central Asia, as well as Turkey, Iran, and Afghanistan) are likely to choose to locate production and retail facilities within Kazakhstan's major cities.

While regional infrastructure remains in early phases of development, and will thus moderate near-term potential for consumables in this market, businesses that invest early will have an important first-mover advantage with consumers over the long haul. Companies that made critical investments in Kazakhstan in the early phases of independence should expect to reap great dividends in these emerging markets. As Kazakhstan possesses significant advantages in political stability, rising incomes, an inexpensive, yet well-trained labor supply, an extensive array of agricultural inputs produced in high volume, cheap land, multi-billion dollar investment commitments from major U.S. and European firms, and cash-starved industrial facilities, it is likely to become an essential regional base of operations for many companies looking for high earnings growth potential in the next decade. In particular, there is rising demand in Kazakhstan for domestically produced home-improvement, medicine, hygiene, and food products with instructions in multiple, local native languages. As finished goods are currently shipped in at high cost over great distances, the question is not if, but when, growing regional demand and economies of scale will propel Kazakhstani-based production forward.