Water scarcity poses significant threats to growth outlooks and stability in Central Asia and South Caucasus
Central Asia and South Caucasus are facing a looming water crisis that needs an urgent response. The changing climate, high population growth, inadequate infrastructure, and geopolitical tensions have collectively contributed to this pressing issue over the years. Kazakhstan, Turkmenistan, and Uzbekistan in Central Asia, and Azerbaijan in South Caucasus are categorized as “downstream” countries, making them particularly exposed to water shortages. While the implications of water scarcity are far-reaching, MNCs in the region should be aware of its implications.
MNCs operating in water-intensive industries or reliant on water-dependent local suppliers, raw materials, or agricultural products will be particularly vulnerable to water scarcity. Limited water availability can cause production slowdowns and interruptions. Investing in water-efficient technologies and infrastructure is crucial to mitigating risks and adapting to water rationing. MNCs could also face disruptions in their operations as a result of heightened social and cross-border tensions related to water access. While there have been notable advancements in transboundary water negotiations in recent years, the relationships between countries in the region remain fragile. An unfortunate incident occurred in April 2021, when a deadly clash took place between Kyrgyzstan and Tajikistan, resulting in the loss of at least 31 lives, numerous injuries, and the evacuation of 10,000 individuals following a water dispute.
Given MNCs’ own climate commitments and their growing role in advancing the United Nations’ Sustainable Development Goals (SDGs), it is crucial for them to prioritize supporting local and regional water projects as part of their corporate social responsibility (CSR) activities in the region.
- Approximately 80% of water resources In Uzbekistan and around 70% of water resources in Azerbaijan come from neighboring countries. This highlights the need for effective transboundary water management and efficient utilization of water resources.
- The World Resources Institute has classified Uzbekistan as one of the most water-stressed globally until 2040, with recurring droughts every five years.
- According to Kazakhstan President Kassym-Jomart Tokayev, the two primary rivers in the region, the Syr Darya and Amu Darya, which provide 90% of the region’s river water, are projected to experience a loss of approximately 15% by the year 2050.
- Uzbekistan’s forecasts are much gloomier. The government expects 10–15% reduction in the volume of the Syr Darya this season, while the amount of water in the Amu Darya is seen contracting by an even more dramatic 15–20%.
- Despite being countries with water scarcity, Uzbekistan, Azerbaijan, and Kazakhstan ranked as the fourth-, 10th-, and 11th-largest water consumers respectively, according to Worldometer statistics. This can be attributed to lower water tariffs.
- President Tokayev proposed holding the Regional Climate Change Summit in 2026 in Kazakhstan during the Astana International Forum, recognizing the significant impact of climate change on the region.
We anticipate water scarcity to persist in the region, posing ongoing challenges that impede the agriculture sector’s full potential, restrict access to clean water in summer months, and, in certain cases, fuel domestic protests and cross-border conflicts. Without proper and timely intervention, reduced crop yields due to water shortages will negatively impact GDP growth, increase poverty rates (as the sector employs a significant portion of the workforce), and cause public dissatisfaction in the region. The decline in crop yields will also contribute to higher inflationary pressures, causing distortions in population income. According to the World Bank report, failure to take action now could result in economic damages equivalent to 1.3% of GDP per year from droughts and floods in Central Asia. Additionally, crop yields are predicted to decline by 30% by 2050, potentially leading to approximately 5.1 million internal climate migrants by that time.
The governments have initiated stringent measures to address the water crisis, but the progress thus far has been limited. An alarming example is Bishkek, the capital city of Kyrgyzstan, which, despite being an upstream country, is already grappling with a severe water crisis caused by overpopulation and outdated infrastructure. The situation has led to the closure of swimming pools, car washes, and a constrained availability of drinkable water.
Water bills in the region have been increased in response to water shortages over the years. However, they remain low, leading to unsustainable water resource utilization. MNCs should expect a rise in water tariffs in Kazakhstan this year following the government’s new announcement in April. This will help the government to modernize the infrastructure and raise the salaries of low paid workers in utilities. Climate adaptation and mitigation measures, such as setting a climate neutrality target by 2060 in Kazakhstan and the adoption of water-saving and smart technologies like drip irrigation, have also gained traction in recent years. However, the lack of significant investments, relevant expertise, and endemic corruption in water management institutions hinder progress. We anticipate new B2G opportunities for foreign companies as governments seek international expertise and solutions to address water scarcity. Promising areas for collaboration include drip irrigation technologies, smart agricultural practices, and the development of climate-resilient infrastructure like dams, reservoirs, and water treatment plants.
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