The futures of the EBRD region to 2025 [EBRD

Transcription

The Futures of the EBRD Region to 2025
This document reports on the project “The Futures of the EBRD Region 2025” conducted by
Outsights1 with the EBRD in 2006-7 and presented and discussed at the final plenary of the 2007
EBRD Annual Meeting and Business Forum in Kazan, Russia. The project was designed to stimulate
new thinking on the region, to look for the key drivers of change and the possible alternative
outcomes for the region.2 The hope is that it will provoke debate, stimulate new ideas and help push
towards further creative action for change.
Four factors or drivers of change were selected as main points of focus for the project: people, the
environment, technology and the future of China. The outcome of the analyses and debate carries a
strong message: the combination of meeting some serious demographic challenges, meeting the twin
environmental challenges of pollution and climate change, being competitive in a fast moving world of
technology and adapting to the evolving role of China, all will be major determinants of the EBRD
region’s success in the years to 2025. The challenges are significant. The resources available in the
region to achieve success are considerable. The need for action is clear.
1
Outsights is a strategic consultancy that helps its clients to anticipate, interpret and act upon
important developments in the outside world. www.outsights.co.uk
2
Building on the scenarios session held at the 2006 Annual Meeting, the project conducted a series of
workshops at the Bank during 2006/7, identifying and prioritising the key drivers of change for the
region and researching the key dimensions, prior to the presentation of the results for debate in
Kazan. The four key factors were not selected as the only important issues, but as factors that could
benefit from greater attention in the debate on the longer term future of the region.
Outsights for EBRD 2007
Page 1
The report is divided into three parts:
Part One: Cycle of Progress of Spiral of Decline?
What does the future hold for the 21 countries of the EBRD region in 2025: will countries be enjoying
a cycle of progress or suffering a spiral of decline? What are the implications for policymakers,
business and civil society?
Part Two: The Debate on the Future: Kazan 2007
At the 2007 Annual Meeting in Kazan, more than 200 participants and an expert panel 3 joined in the
closing session debate on the future prospects for the region, reviewing the work of the project. Part
Two summarises the perspectives of participants and panellists and synthesises the four factors and
their interconnections.
Part Three: Factors of Change: the Analysis
Part Three describes the four key factors of change that, individually and together, will strongly
influence the future prospects of the EBRD region. The report draws on the project research
programme and the presentation delivered in Kazan.

People Matter

Environment without Frontiers

High Tech, High Stakes

China on the Move
3
Liqun Jin, Vice-President, Asian Development Bank (speaking in a personal capacity), Arkady
Dvorkovich, Head, Presidential Experts’ Directorate, Russia, Yuri Dzhibladze, President, Centre for
the Development of Democracy and Human Rights, Russia
Page 2
Contents
Part One: Cycle of Progress or Spiral of Decline?
5
A cycle of progress: a combined effort
5
A spiral of decline
6
The chances of success
7
Policy implications
8
Is the region ready?
8
Part Two: The Debate on the Future
Kazan 2007 and perspectives on the region
10
10
Perspectives for success
10
Assessing readiness
11
Importance of the four factors of change
12
Perspectives from across the region
13
The Factors of Change: synthesis
16
People Matter
17
19
21
China on the Move
23
25
People Matter
25
Introduction
25
Cycle of progress or spiral of decline
26
Linkages with the environment, technology and the future of China
26
Timing: a special feature of demographic change
27
Analysis of the Demographic Factor
28
Population Dynamics
28
Mortality
31
Migration
37
Page 3
Introduction
41
41
42
Linkages with demographics, technology and the future of China
42
Analysis of the Environmental Factors
44
Pollution
44
Climate Change
48
53
Introduction
53
53
Linkages with demographics, the environment and the future of China
54
Analysis of the Technology Factor
55
Fast and Global Technology
55
Competing in the Knowledge Economy
57
Driving towards the Cycle of Progress
63
China on the Move
Introduction
68
68
68
Linkages with demography, the environment and technology
69
Analysis of the China Factor
70
The Largest Emerging Market
70
Economic and Environmental Hurdles
74
Page 4
Part One: Cycle of Progress or Spiral of Decline?
The outlook for each of the 21 EBRD countries in 2025 lies along a spectrum bounded by a “cycle of
progress” and a “spiral of decline”. In a successful future, major challenges in the fields of
demography, the environment, technology and the rise of China have been overcome, with a range of
policies each supporting the other. In the alternative spiral of decline, the major challenges have not
been met, current problems have worsened, and there is no interlinking of policies supporting each
other.
A cycle of progress: a combined effort
In the cycle of progress, the eight countries4 in the region (now accounting for almost three quarters of
the region’s population) which face the prospect of a continued decrease in their population will have
invested heavily in good healthcare and a much higher quality of life. People will adopt healthier
lifestyles themselves and fertility will be on the rise. Mortality rates will have begun to improve towards
the levels seen in Western Europe. The economic impact in Russia alone means an increase in real
income per head by 63% by 2025 rather than the current forecast of 37%. Russian men will expect to
live to over 70 instead of dying in their late 50s, and women will be living close to 80 rather than their
early 70s. There will be a two way migration of people that neither drains countries of needed labour
and skilled people nor overwhelms their labour markets with inflows from poorer neighbours. The
need for change is urgent: for countries in need of new workforces in 2025, they have to be born now.
Though demographic changes take generations to take effect, at least improving fertility prospects to
match the most optimistic UN forecasts will limit the population drop in the eight countries to 16 million
by 2025 (from 243 million) - rather than the alternative forecast of a decrease of 41 million. This will
allow these countries the chance, longer term to 2050, to limit the fall by 2050 to 30 million, rather
than the present 100 million, 40% drop forecast by the UN. Halting the decline will allow the region to
start tackling its own ageing challenge. The most rapid ageing in the world is currently expected in the
EBRD region with the median age jumping by 10 years in these eight countries by 2025.
The re-establishment of a growing and healthier workforce will be an important step in rebuilding the
educational skills of the EBRD countries. In order to foster a technologically competitive and
innovative business sector, Russia, Ukraine and Belarus, the three countries with the best-educated
populations in the region, will have reversed their slide in the global rankings. All countries’ rankings in
the knowledge economy will be rising compared to the rest of the world. Russia will be spending
more, not less, than China on research. Many of the 4,000 Russian trained scientists in Silicon Valley
will be attracted back home and/or be active participants of the region’s science network.
Kazakhstan’s “Bolashak” (Future) programme will be a model for education. The ten countries
currently falling in the global rankings in terms of connectivity will be rising up the global rankings and
closing on the best in Europe. The dozen countries that have been slipping down the global rankings
in terms of innovation will be rising. There will be no reason not to match the global best such as the
Scandinavian economies. The region will be actively networking globally in science cooperation,
keeping up with the rapid advances across a wide range of scientific disciplines, leading on some,
supporting on others.
4
Russian Federation, Ukraine, Romania, Belarus, Bulgaria, Croatia, Georgia, Moldova
Page 5
Being competitive in technology will also be key to meeting the twin environmental challenges of the
next decades, pollution and climate change. Success will mean rapidly replacing the polluting
industrial base, which currently gives the region one of the world’s worst track records and
undermines population health. The region will have to achieve significant advances in the efficiency of
energy use (which is quite feasible given current inefficiencies). The environmental degradation of the
Ferghana Valley, otherwise one of the world’s most fertile regions, will be turned around even if
dealing with the nuclear pollution legacy will take time. Where climate change threatens, such as in
permafrost areas, countries will have the technology to take offsetting measures and develop the
plans to move people and resources to meet the challenge.
The combination of an improved demographic position, with a healthy workforce, a technologically
competitive and innovative business sector supported by trained people, and a cleaned up
environment able to cope with the new pressures of climate change, will see countries of the region in
a better position to meet the challenges of a rapidly growing China. Aside from the political and
military implications of China’s advance, China already offers a number of challenges. It is potentially
draining skilled workers from the EBRD region to meet its own skill needs, or is the source of people
moving to the region in search of work. It causes more environmental degradation as China’s
industrial growth worsens the present dark pollution clouds hanging over the Asian region.
There is a dual uncertainty: Can China keep itself in its growth path and be successful? And will
success or failure by China have a positive or negative impact on the region? It is likely that success
is preferable to problems, tensions and strife in China, even if that makes it an even stronger
competitor for goods, services, resources and people. A vigorous China will be a strong market for
high tech goods from the region, for resources and for expertise to help China cope with its own
environmental and other challenges. Either way, the stronger the EBRD region, the easier it will be to
cope with whatever the future holds for China. The region’s countries will be showing how the
democratic market model can more than hold its own with the “authoritarian capitalism” of China.
Cooperation with China will be integral to success. As stressed by one Kazan panel member, “China’s
impact on the region could be very positive as long as both sides cooperate”.
A spiral of decline
Achieving this successful growth cycle is going to need success on all four fronts: people,
environment, knowledge/technology competitiveness and working with China. But a spiral of decline
remains a very real possibility. Many countries are facing a decline in populations due to poor fertility
and high mortality and some like the Ukraine are also suffering net outward migration. Alternatively a
number of countries face rapid population growth without the obvious means to provide jobs in the
longer term. The quality of life is poor and spiralling down. Where action is not taken, heart disease
from poor diet and low exercise, smoking, alcohol and obesity will continue to claim a high percentage
of lives. The overall mortality rate in Russia will still be 3 times that of Western Europe, if not worse.
Traffic and industrial accidents, suicides and violence will remain more than five times the Western
European average – partly due to ageing infrastructure. HIV/AIDS – already infecting 5-7% of working
age males in Russia’s cities - will have accelerated unchecked, reaching major epidemic proportions
closer to African levels, especially in the drug trafficking areas of central Asia. Tuberculosis is already
at its highest levels for 30 years. The health service will not have transformed from an ageing system
designed combat infection into one that can cure so-called “civilisation” diseases such as cancer.
Page 6
Public expenditure on health will remain a meagre 3% of GDP or less, less than half of that in the UK
and a quarter of US levels.
In terms of the skills needed to compete in the knowledge economy, in a spiral of decline all the
countries will be becoming less competitive. Not only will the numbers of successes in innovation so
far have to increase significantly to avoid decline, the legal frameworks that impede innovation will
need to be removed. Protectionist attitudes to science and technology and techno-nationalism will
have to be prevented.
Pollution is still high and, in the spiral of decline, action is paralysed by the apparent cost and an
abject failure to recognise that investment in the environment is a driver not a constraint on economic
growth. To avoid this decline there will need to be a revolution in waste management similar to the
radical cleanups achieved in the rest of the world when industrial growth was dirty. In a spiral of
decline the Ferghana Valley and the polluted city of Norilsk will have failed to combat inherited
pollution, and progress in rehabilitating the Aral Sea will stall. The EBRD region will have failed to cut
back any further its high energy intensity use, missing the opportunity to lead the world in cutting
carbon emissions and energy costs. The Ukraine will have missed the chance to halve gas imports,
Russia the chance to cut energy consumption by 40%.
As in all countries of the world, climate change potentially holds out many surprises to come and the
failing countries will be reactive not proactive in coping with rising temperatures, rising sea levels, the
effects on forests, crops, water supplies and health. Respiratory diseases will be increasing, malaria
spreading. Decline will be driven by the absence of cross-country cooperation to deal with climate
change. Particular pressures will emerge as the number of environmental refugees rises. Siberia will
be witnessing a still rapid rise in temperatures, infrastructure and the built environment will be
disrupted with no coherent plans to combat the impacts or to exploit possible opportunities (such as
agricultural development of former permafrost land).
In short, countries experiencing the spiral of decline will not be combating the existing threats to
development nor taking advantage of new opportunities. The absence of a spirit of cooperation will
widen the differences between those who are more successful and those that fail to address the very
real challenges ahead.
The chances of success
In a welcome display of optimism, Kazan participants scored the region 6 out of 10 in terms of where
the region will be in 2025 along the spectrum between a cycle of progress and a spiral of decline.
Less than 2% saw the region scoring below 2. If the scores for the region represent the distribution of
countries’ success and failure, then we will see 2 to 3 countries as really high achievers, 11 countries
distributed above halfway and the remaining 7 lagging less than halfway along the spectrum.
Page 7
Policy implications
How do EBRD countries get onto a successful cycle of progress and avoid a spiral of decline? The
project work suggests at least 7 main areas for action, involving governments, business and civil
society:
1. Health, with an emphasis on developing healthy lifestyles (rather than just spending on
healthcare facilities). Increases in population are not ends in themselves (i.e. the number of
people is not the goal) but it is clear that both low fertility and high mortality reflect very serious
quality of life problems and mortality rates in particular are unacceptable.
2. Education, aiming to restore good education levels and develop those in countries where the
level has never been high. This is one critical stage to making the region competitive in the
knowledge economy.
3. Migration: to understand potential migration flows and to focus attention where these are either
potentially damaging (excess inflows, or a brain drain) and where they need to be encouraged or
supported. Each country has its own issues, whilst there is good reason to have an overarching
coordinated approach within the region and with the region’s neighbours.
4. Technology: an active programme to ensure the research capabilities in the region are
developed and in an open networking way with the rest of the world. It will be important that
techno-nationalism is not allowed to constrain knowledge development.
5. Energy and environmental leadership: push hard to cut emissions, improve energy use and
efficiency; radically clean up the region recognising that this is positive for growth not a cost
without benefit.
6. Climate change: an active programme to understand the potential impact on the region: this is
poorly researched and there are some huge uncertainties, for coastal areas, forests, for water
supplies, for agriculture and for the permafrost regions.
7. China: recognise and monitor Chinese impact on the region, in demography, competing in the
knowledge economy, environmental protection, trade, investment and other areas.
Is the region ready?
The Kazan participants’ response as to how ready governments, business and society are to deal
with the four challenges suggest that is going to take some doing to deliver on the optimism for
success. On a scale of 1 to 10, few saw governments or society being more than half ready,
alongside a higher expectation that business is ready. To get action going it is clear that the region
will have to do a lot better on that other major challenge, governance.5 If not, the 57% of people polled
in the EBRD Life in Transition Study who believed that children born now will have a better life than
themselves will be sadly disappointed.
5
Also ranked high as an important driver of change for the future of the region at the 2006 Annual
Meeting scenarios session.
Page 8
A sense of perspective in time
18 years on, 18 years ahead: 1989 to 2025
The project looked ahead 18 years to 2025, at the future EBRD region, which does not include the
eight countries which have recently joined the European Union.
It so happens that a period of momentous change for the region started 18 years ago, in 1989 – the
year of the Velvet Revolutions in Europe, the fall of the Berlin Wall, Japan’s economic bubble at its
peak, the events of Tiananmen Square and the first visit since the 1960s of a President of the Soviet
Union to China. Also in 1989 the major oil spill from the Exxon Valdez triggered a new wave of
environmental thinking about responsibility for the environment and prevention of pollution. In 1989
the first GPS satellite went up into Space, accelerating the pace of global communication
interconnectedness.
In the 18 years since 1989 we have had many more changes. The fall of the Soviet Union. The end of
apartheid in South Africa. The first Gulf War. 9/11, opening up the “war of terror” and war in
Afghanistan and the second “Gulf War”. The genetics revolution, mapping the human genome and
cloning animals for the first time. The World Wide Web set up. The dotcom era boom and bust. World
population exceeded 6,000,000,000. The European Bank for Reconstruction and Development was
established.
Page 9
Part Two: The Debate on the Future
Kazan 2007 and perspectives on the region
More than 200 participants at the 2007 EBRD Annual Meeting & Business Forum in Kazan attended
the Closing Session plenary to review the project’s presentation on the future of the region (see Part
Three for the fuller analysis) and to debate, with an invited panel, the outlook for the region.
Part Two reviews the participants’ perspective on achieving success, on the readiness of
governments, business and society to meet the challenges and on the importance of the four key
factors. This is followed by a synthesis of the four factors and their interrelationships, alongside
comments from the panellists at the Kazan debate.
Perspectives for success
To gauge expectations for the future of the region – between a cycle of progress and spiral of decline
- the participants were invited to rate the success of the EBRD region in 2025 on a range from 1
(unsuccessful) to 10 (extremely successful). In a bell curve response, 72% ranked the future between
5 and 8 (average score 6.35), with the remainder pretty evenly divided above or below (with 8% giving
the perfect 10). The participants were divided between the business sector (bankers, business
people), government officials, or civil society (NGOs, academics, media and other).
Page 10
Assessing readiness
Is the region ready to meet the coming challenges of the future? Asked to rank the preparedness of
governments, business and civil society respectively to meet their responsibilities for the future,
participants adjudged business somewhat better prepared (an average of 4.6 with the widest
distribution of rankings) than civil society (4.1) and government (3.9). On average, therefore, all
sectors are seen to be less than half ready for meeting future challenges.
Page 11
Importance of the four factors of change
Finally, participants were invited to assess the importance of the four factors of change for the future
success of the region:

Meeting demographical challenges: rated 7.5 out of 10, with more than one quarter giving a top
score of 10

Meeting environmental challenges: rated 7.7 out of 10, with 30% ratings of 10

Being technologically competitive: rated 7.9 out of 10, 31% scoring 10

The outcome for China: rated 6.7 at of 10, with 15% scores at 10.
The widest range of responses was for China (the 4th rated driver), with the narrowest range being for
technology, the highest rated of the four factors in importance for the future of the region.
Page 12
Perspectives from across the region
Finally, in the past year the EBRD has been polling opinion from across the region in the 2007 EBRD
Life in Transition Study.6 A fuller report on the Study was presented to the Annual Meeting and one of
its verdicts was presented at the closing session, to include this wider perspective.
The dark blue column on the left hand side of the chart above shows that about 43% of people agreed
with the statement: “All things considered, I am satisfied with my life now”. About 32% disagreed with
this statement, while 25% had no opinion. In Uzbekistan, Belarus and Tajikistan, 70 to 75% of young
people between the age of 18 and 34 were satisfied with their present lives, whereas in Croatia over
75% agreed with the statement.
For the future, as shown by the dark blue column in the right hand side of the chart, 57% agreed with
the statement: “Children who are born now will have a better life than my generation”. About 24%
disagreed with the statement, while 20% had no opinion. In Albania almost 90% of the population
were optimistic about their children’s future. In the Central Asian countries, Mongolia, Belarus and
Georgia, optimism is also widespread, especially among the young – 75 to 80% of the age group 18
to 34 expect their children to have much better lives.
6
Life in Transition. A survey of people’s experiences and attitudes, European Bank of Reconstruction
and Development 2007
Page 13
Engagement with the people, the future, the challenges
The potential
There is an extraordinarily huge potential in this region. That potential is in mineral resources, but
even more so in people. The population is declining, but the people are an asset. The potential also
lies in the unique position between Europe and Asia.
Risks and tensions
There are massive risks because there are tensions. The region is confronted by potential domestic
and external tensions pushing very hard on the system; but that is normal. Fifteen years ago this
region was not part of the global economy; it was leading its own life. Now, step by step, the region is
moving to the global economy, and global challenges are reaching the region, which may not be well
enough prepared to meet these challenges. Many forces are at play.
…. in a currently benign global economy
I hear a lot of optimism. However, let us be clear that the world has
financial conditions as over the past few years; the world has never
driving the region. But history tells us that things may change. It is
investors, to measure what this will mean. Some countries may be
there may be an impact.
never before seen such benign
seen such growth. All of this is
up to each of us, especially to
more immune than others, but
People’s future perspective
There may be either excessive optimism or excessive pessimism but the best way approach is to
listen to people. At the EBRD we think the people in the region have rather good common sense. That
is why, to prepare for this exercise you are undertaking, and to look beyond it, we have carried out
surveys in the region. We have learned that, yes, it is difficult, but tomorrow will be better. People who
have had a difficult past understand what is happening today. The leaders and the people of the
region understand the historic path these countries are walking. It is very important that people say
that, while their life is difficult, they understand that it is a process and that the process is right.
The push from government and business to create jobs and growth
Especially in Russia, people say that they do not want to be dependent on oil and gas. They want to
create jobs. They want to become an industrial country again, based on new industry and services.
That is the very strong vision they have, and that is very positive. Are governments able to address
this? Business is very good at planning the short term, very bad at adapting for the long-term.
Governments may not be so good at short term but they have the duty to prepare the long term. The
only way forward is for the two communities to engage in a serious way, each doing its job,
understanding each other but not relying too much on the other.
[continued]
Page 14
Engagement with the people, the future, the challenges… continued
Taking the long view
We see big changes in the region. We see changes in the attitudes of governments. Let me take a
simple example. The way that governments in the oil and gas rich countries in the region manage the
income from oil and gas is good. They take a long-term view. Everywhere in the region they
understand that they should do this. That shows wisdom. Today we see large companies moving
quickly to improve corporate governance. After some years of hesitation, they are now going to
markets and being listed and becoming partners in the global economy. We see this process moving
quite well. That is another reason why I am positive.
Engagement
We have a collective duty to engage. Unfortunately, in the world today I hear too much about
isolation, and that is bad. I do not know what makes for success but I certainly know that isolation is a
recipe for disaster. Dialogue is key… the capacity to engage and to speak. It is crucial for countries
such as Russia, Kazakhstan, Azerbaijan and Ukraine to join the WTO, and to do so quickly. This is
part of engagement, this is part of the building blocks, preparing well for the future and linking
everyone into high standards and shared processes. This is a responsibility we all have.
Investment in people
My personal view is that the future will be positive if we make it positive; it will be negative if we
behave in such a way that it is negative. The region can have a very positive future, provided we pay
attention to one major lesson from the survey. People in the region know that in the past education
standards were very high. Now they are worried. They are concerned about the quality of education
needed to face increased competition and be part of the global economy. Governments, public
institutions and the private sector have a responsibility to ensure that it works well. When you not sure
what to do, certainly one smart approach is to invest in people. If the region invests in fighting against
poverty and in educating people, I have absolutely no doubt it will quite quickly benefit from being part
of the global economy and will be a very good partner.
Jean Lemierre, President, EBRD
From closing remarks to the Kazan plenary on The Futures of the EBRD Region 2025
Page 15
The Factors of Change: synthesis
The project focused on four factors or drivers of change:

People

The environment

Technological competitiveness

The future of China
These four factors are all interlinked in many ways, such as those as illustrated below. Achieving
success, a “cycle of progress”, will almost certainly require progress on all four fronts. Equally,
problems on all four fronts would almost certainly push the countries in the region towards a “spiral of
decline”.
Population growth
Climate change
Fertility, Mortality
Migration
Quality of life
Pollution and
environmental quality
Health
Human
resource
skills
Economic success
Education
Consumption
Output
China’s
demand
Migration
Pollution in
China
Economic success
of China
Technological capabilities
Global
technology
growth
China’s technology skills
and needs
Page 16
People Matter
Synthesis
A region where the future is expected to see individual countries’ populations doubling or halving is a
region of tremendous variety in demographic outlooks. Behind these numbers are major challenges
for fertility, for mortality, for migration.
Achieving a cycle of progress requires a strong healthy and balanced human resource, raising
economic growth and not undermining economic efficiency or the social fabric. Countries will need
much improved health and education, better consumption patterns and lifestyles. A spiral of decline
would be driven by worsening healthcare, unchecked epidemics and pandemics, worsening food
intakes and lifestyles and deteriorating levels of skill and education.
Future migration flows will be particularly sensitive to the environment (pollution and climate change)
and to the future of China. Climatic deterioration, whether flooding of coastal areas or land
degradation, and pollution and other human causes of degradation have the potential to cause rapid
shifts of people in coming years, within the region and across borders. Migration from China is already
significant and success or failure of China’s economy to provide jobs (and a clean environment) will
be important.
Fertility and mortality will be shaped by the impact of pollution on health - from the availability of clean
air and water to the availability of healthy foods and the ability to pursue healthy lifestyles. Technology
and education will support improvements in fertility and mortality, developing the people needed for a
successful knowledge economy.
Timing is critical to future demographic patterns. Investment in people has a long payoff but also
takes time. Population trends do not just happen: they can be foreseen and actions to deal with the
consequences can be taken – but this equally means the earlier action is taken, the more options are
open for the long term.
Page 17
People matter, indeed
Democracy, rights and civil society: the risk of division
All the four themes are highly important. However, one particular, over-arching theme to be added is
the state of democracy, observation of fundamental rights and the level of development of civil
society. The western part of the EBRD region seems to be doing relatively better, while developments
in the eastern part of the region, in terms of economy, environment, education, healthcare,
technological competitiveness and demography have been falling behind.
There are very worrying trends in democratic backsliding in the eastern part of the region. We
observe major restrictions of the space for fundamental rights and freedoms, democratic debate and
civil society in many countries towards the east, Uzbekistan and Belarus being the most outstanding
examples but also Russia and many other countries.
These challenges pose fundamental questions not only to the governments and the private sector but
also to society as a whole. Without vigorous debate on policy options, without active involvement of all
society in the debate, without civil control mechanisms over government performance and private
sector accountability to tackle corruption, to involve the public in deliberation and decision-making, we
shall not be able to meet all these challenges. People matter indeed. Without people enjoying their
fundamental rights and freedoms, without human dignity being upheld to at least the minimal
standards, we shall not be able to bridge the growing divide between the eastern and western parts of
the region and within societies. In my country the gap between the rich and the poor is growing. There
is less access to healthcare, education and other fundamentally important services and public goods
for people who have lower incomes or who live outside of major urban areas.
My hope is all the sectors - government, business, society and banking - can work together and see
how important robust democratic institutions, strong civil society and fundamental human rights are
for economic and social development of the region. If we are able to ensure those elements, I feel that
my positive vision that the region will be successful in 2025 in addressing these major challenges and
taking the lead – let us be bold; the region is able to take the lead globally – in economic, social and
political development, in providing free societies and sustainable economic development, with
everyone in society benefiting from this development, may come true.
Yuri Dzhibladze, President, Centre for the Development of Democracy and Human Rights, Russia
Panellist, Kazan plenary on The Futures of the EBRD Region 2025
Page 18
Synthesis
Environment has two dimensions: pollution, an immediate and urgent problem, primarily though not
entirely local in source, which can be acted on now to find local solutions; and climate change, a
highly controversial, uncertain, longer-term more global driver of change, with the potential to alter the
region radically.
High levels of pollution are largely a legacy of poor practices in industry and agriculture, from
disasters such as Chernobyl to the widespread degradation of some of the most fertile parts in the
world. Reversing decades of environmental degradation requires improved production methods and
efficiencies (including energy efficiencies).
With much of the region landlocked, rising sea levels threatened by climate change do not offer,
proportionately, as obvious a threat as in other regions of the world, but changes in water availability
(scarcity or flooding) are likely. The outlook for the tundra and permafrost is very uncertain, not least
the possibility of rapid thawing and the attendant uncertainties as the region has to alter its whole
lifestyle and infrastructure, and as the agricultural potential may (or may not) improve.
An upward cycle of economic progress can be achieved if the region can make the transition from
being polluted and energy-wasting to being clean and energy efficient. In a spiral of decline
worsening pollution would undermine health and labour productivity.
A cycle of progress requires the region to be able to cope with whatever climate change does
emerge. Environmental damage is a drag on economic growth, whilst investment in environmental
protection can create employment, boost output and raise productivity. As Kazan panellist Liquin Jin
put it, “Investing in ecological and environmental protection is part of the engine of growth.”
Climate change and environmental quality will drive new migration flows where the region’s quality of
life is either threatened or improved. Environmental quality will have a direct impact on fertility and
mortality.
Technology may be key to meeting environmental challenges, improving energy efficiencies, cutting
emissions, providing cleaner water and improving waste management.
Page 19
Environmental degradation in China may spur emigration from China to Russia. Water pollution,
through shared river resources, is already a major problem. There is significant scope for cooperation
at the global level, as both Russia and China are under pressure to lead global efforts to curb carbon
emissions.
On environmental management
The environment in Russia has been eroded by various parts of the state, by various projects and by
business. We have to work hard in order to maintain sustainable environmental development here.
We need this just to survive.
Yuri Dzhibladze, President, Centre for the Development of Democracy and Human Rights, Russia
Even if the decisions of society, institutions or government experts are the right decisions, there are
always reasons to back away from them. On the basis of ecological requirements, grounds could be
found for the closure of all factories in Russia. The main thing is that decisions should be based on
the principle of the rule of law.
Arkady Dvorkovich, Head, Presidential Experts’ Directorate, Russia
People tend to look at economic growth and environmental protection as mutually exclusive. That is
wrong. The EBRD region is greatly endowed with natural resources. However, that does not mean
that one can indulge oneself by using more resources without doing so efficiently. Governments and
businesses are paying more attention to the conservation of natural resources. With economic growth
the need for resources will certainly increase, but necessity also breeds innovation, an urgency to be
innovative with efficiency. It is important that economies should be better equipped to recycle
resources and be more efficient. Investing in ecological and environmental protection is an engine of
growth, making the economy more sustainable.
Liqun Jin, Vice President, Asian Development Bank
Page 20
Synthesis
Technology – linking knowledge, innovation and education – profoundly affects the region’s
competitiveness. Will the region keep up with and even outpace the fast changing world of technology
and be, as a result, economically competitive? Or will the technology and knowledge gap between the
region and the rest of the world widen, leaving the region uncompetitive? Present trends suggest
there is a lot to be done.
A cycle of progress would include increasing openness to external ideas and scientific and
technological developments, public and private investment in education, in research and in the
existing science base, incentives for innovation and entrepreneurs and a modernisation of industry.
In a world where networking increasingly holds the key to global competitiveness, a spiral of decline
is likely to be characterised by protectionism or technology nationalism that prevents the rapid
adoption of technologies.
Competitiveness in the knowledge/technology economy requires a healthy, educated workforce.
Investment in technology will improve quality of the environment, on energy efficiencies, and on
productivity through a renewed capital base of efficient machinery and communications services.
There are opportunities for technology cooperation and competition with China – for technologies
themselves and for skilled people. The stronger and more successful China’s economy, the higher the
bar is likely to be raised for the region to be competitive. Tackling cross-border issues, such as
pollution and climate change, on which the breakneck expansion of China’s economy is having a
major impact, will also require the application of technology.
Page 21
Alternative strategies for change: state led or stimulating private initiative
Governments have not made a choice on their approach to tackling the problems. There are at least
two possible strategic ways. One way is through additional government intervention, state-run
programmes or interstate-run programmes. Another way is to stimulate responsible behaviour, to
stimulate private initiative to tackle the problems and in some cases, at least in regard to environment,
to punish those who do not behave responsibly in doing business. In some countries the state is
basically still trying to resolve all the issues on its own. In some countries it is given to society or to
business, resulting in government stimulation. We in Russia have to make this choice.
Examples are telling. In the health sector, for example, this is closely related to the
demographic issue. You can spend billions of dollars to develop a state-run health system or you
can educate people on how to take care of their own health. You can stimulate people to behave in a
healthy way and to have a healthy lifestyle. The same goes for families and the number of children in
families. You can support families with more children or you can use propaganda to persuade families
that they should have more children, resulting in actions to support families.
It is the same with innovation and technological programmes. You can support governmentowned research centres, you can do it through government-owned enterprises, which is now the trend
in Russia, unfortunately. Or you can create a network of institutions supporting private initiatives in
this area. That is again a choice that we in Russia should make.
No country will be successful if it tries to resolve these problems on its own, even big countries such
as China and Russia. Only international assessment and evaluation of environmental and
demographic issues, including integration of migrants into new societies, and technological progress,
can result in success.
Arkady Dvorkovich, Head, Presidential Experts’ Directorate, Russia
Page 22
China on the Move
Synthesis
China is one of the region’s most important neighbours. The region’s future will be significantly
shaped by relations with China to the east and the EU to the west. The relationship can be both
competitive and cooperative.
Bordering the world’s next most powerful economy can be a great economic benefit and stimulus, but
it may also put the region under enormous economic pressure. China is a major investor in and buyer
of the region’s natural resources, its strong and growing demand exerting quite a lot of power over the
origins of those resources. The country may also be a major market for higher value-added exports
from the region. Equally, any problems for China as it seeks to overcome its economic and
environmental hurdles can mean a worse future for the region from the spillover of further pollution
and lost markets in China. Booming economies in China and the region are likely to be attractive to
migrants in both ways. But if one economy is weaker than the other, it could lose valuable skills to its
neighbour which, in turn, might not welcome an increase of migrants.
China is of course much more than a very big and increasingly important neighbour. It is linked with
the region through migration, cross-border pollution, economic competition, trade and investment,
political and military power and the evolution of its development model. Also like the region, China is
not bound to follow one future. There are alternatives and significant uncertainties.
Migration from China into the region, particularly into Russia, is increasing and the Chinese could
become the second biggest ethnic group in Russia.
Cross-border pollution between China and the region is growing and having a direct impact on the
region. At the global level, China is now the world’s biggest emitter of CO2, which is likely to have a
further impact on the region through global warming and climate change.
Page 23
As competition from China intensifies, the importance of the region keeping up with the rest of the
world in technology, education and innovation increases. China’s huge and growing investment in
R&D contrasts with less impressive efforts in most of the region.
The futures of China and of the EBRD region are closely interlinked and interdependent,
economically, environmentally, demographically. They share similar challenges and uncertainties.
They can compete, they can cooperate.
Positive cooperation in a globalised economy
As long as both sides cooperate, China’s impact on the EBRD region could be very positive. When
people complain about the unintended consequences of the globalised economy, they sometimes
forget a very important point: people have gained substantially from the globalised economy and from
regional cooperation. We should understand that those who gain from the globalised economy are
usually silent; those who suffer are noisy. Please do not be deceived by some perceptions of the
benefits which accrue to the people. I believe that China and the EBRD region can work wonderfully
well so that we can have a win-win situation.
Liqun Jin, Vice-President, Asian Development Bank
Page 24
The greatest power for change – for better or worse – lies in the combined impact of demographics,
environmental change, technology and the geopolitics and economics of a continent sandwiched
between Europe and an emerging China.
Part Three takes a more in-depth look at each of the factors of change in turn. Each factor is
introduced by a review of its influence on countries’ success or failure - achieving a cycle of progress
or sliding towards a spiral of decline - and of the key linkages between the four factors.
People Matter
Introduction
A region where the future is expected to see individual countries’ populations doubling or halving is a
region of tremendous variety in demographic prospects. Few countries have a healthy population
trend. In Central Asia, population growth tends to be high, leading to a disproportionately young
population. In Russia, the population is declining and ageing, and life expectancy is stagnant at a low
level.1
Behind these numbers are major challenges for fertility, for mortality, for migration - all closely
entwined with the future of the other key factors of change: the environment, technology and the
future of China. The demographic outcomes will determine the future quality of life – and the quality of
life in turn will determine the demographic futures. In Kazan participants ranked demography 7.5 out
of 10 in terms of importance for the future of the EBRD region, a shade behind environment and
technology and a little ahead of the future of China.
Page 25
The demographic challenges, to be tackled if countries are to advance towards an upward cycle of
progress rather than a spiral of decline, can be described in their quantitative and qualitative
dimensions.
The key quantitative dimensions relate to the rate of growth of populations. Successful outcomes will
include a sound balance between dependents and the working population. Fertility levels will be
rising where populations are currently falling rapidly, or slowing where poorer economies cannot offer
employment growth to satisfy fast birth rates. In successful countries, mortality rates will be delivering
life expectancies closer to rich countries’ averages. Migration flows will contribute towards filling skills
gaps rather than draining economies of talent, and will not be dramatically disrupting social structures.
In short, countries need population growth rates that are commensurate with economic success,
building a strong healthy and balanced human resource, raising economic growth and not
undermining economic efficiency or the social fabric.
The qualitative dimensions of countries’ demographic futures relate to the quality of life and the
qualities of the people themselves. A successful cycle of progress means much improved health and
education, better consumption patterns and lifestyles. A spiral of decline means worsening
healthcare, unchecked epidemics, worsening food intakes and lifestyles and deteriorating levels of
skill and education.
Linkages with the environment, technology and the future of China
Future migration flows will be particularly sensitive to the environment (pollution and climate change)
and to the future of China. Climatic deterioration, whether flooding of coastal areas or land
degradation, and pollution and other human causes of degradation have the potential to cause rapid
shifts of people in coming years, within the region and across borders. Migration from China is already
significant and success or failure of China’s economy to provide jobs (and a clean environment) will
be important. The outcomes will depend on the balance of labour and talent both in China and in the
EBRD region itself. A successful China may attract a flow of people from the region seeking
employment. It may also push a stream of job seekers from China if success cannot provide the
educated young with the opportunities they desire. A China in crisis, or slowing, may also drive a
faster emigration of job seekers. China is both competitor and collaborator, with its economic and
environmental health and strength having multiple and at times opposite impacts.
Both fertility and mortality will be affected by the environmental future, especially through the impact
of pollution on health. Together they will shape the quality of life, from the availability of clean air and
water to the availability of healthy foods and the ability to pursue healthy lifestyles. Technology and
education will support improvements in fertility and mortality, through healthcare and engaging in
healthy lifestyles, and through building a skilled workforce in health, teaching and technology – the
people needed for a successful knowledge economy.
Page 26
Timing: a special feature of demographic change
Timing is critical to the future demographic patterns. Investment in people has a clear payoff over a
long time. Population trends do not just happen: they can be foreseen and actions to deal with the
consequences can be taken (but as the pension crises in many ageing societies shows, action is
often left until very late). Shocks such as disease, environmental disaster and political shifts can
cause rapid changes, such as a push or pull on migration (as with flows into and out of Russia and
into the EU in the decade following the collapse of the Soviet Union). In contrast, changes in fertility
and mortality rates are generally slower and can take a very long time - generations - for the impact
on the population structure to be felt.
Equally, improvement in skills takes time, through improved education and the development of
technology capabilities. However, because long term trends are slow to take effect, early action is
critical. The new workforces of 2025 have to be born now. Equally, disease and migration have
longer-term incubation periods. Even though HIV/AIDS, for example, is currently below the worst
levels of the rest of the world, this does not guarantee against the escalation into a much greater
crisis. Improved healthcare requires a considerable period to make an impact, for healthier children to
be born to healthier parents, for family lifestyles to improve. A rapid exodus of talent, should it occur,
can take years to reverse. Perhaps of all areas of change, it is in these social areas that progress
requires a culture of expectation of improvement to sustain the momentum of necessary
transformation – for the signs of hope suggested by some of the EBRD polls to be proven wellfounded.
Page 27
Analysis of the Demographic Factor
Population Dynamics
Population trends in the region are notable for their striking variation, between countries and within
countries according to alternative fertility assumptions (see table for the latest UN forecasts to 2015,
2025, and 2050).2 Planning for 2025 needs to pay attention to the 2050 numbers to highlight the long
term path of a country’s population – it takes time to turn the trends around, and by the same token
the earlier changes start, the sooner the long term path can be corrected where necessary and make
the better long run options more achievable.
We can organise the UN forecasts into three main groups of countries:

Falling populations: eight countries where population is expected to fall to 2025 and to 2050,
whatever fertility assumption is made, high or low. This group covers almost three quarters of the
population of the region, and includes the Russian Federation, Ukraine and Romania (themselves
almost 90% of this sub-group), plus Belarus, Bulgaria, Croatia, Georgia and Moldova. With a
current population of 243 million, their combined population is forecast to be between 202 and
227 million by 2025. By 2050 the range is 146 and 212 million by 2050, thus falling by up to 100
million from today.

Rising populations: Mongolia plus the four central Asian countries of the Kyrgyz Republic,
Tajikistan, Turkmenistan and Uzbekistan, with current population of 46 million forecast to rise to a
range of 55 to 62 million by 2025 and to 55 and 79 million by 2050. The overall 2050 low fertility
number is similar to 2025 as the populations of Kyrgyzstan, Mongolia and Turkmenistan start to
fall (although still above today’s level); Uzbekistan’s population stabilises at low fertility; only the
population of Tajikistan continues to rise even at the low fertility assumption.

Mixed fortunes (rising and falling): for the remaining eight countries – Albania, Armenia,
Azerbaijan, Bosnia and Herzegovina, Kazakhstan, FYR Macedonia, Montenegro and Serbia - the
outlook varies over the time period and/or under different fertility assumptions. Overall (for all
eight countries) the population rises by 2025 at high fertility rates, and falls by 2050 at low fertility
rates. The largest populations are Kazakhstan (15 million), Serbia (10 million) and Azerbaijan (8
million). Together the population of the eight, currently 46 million, is forecast to range between 46
and 52 million in 2025 and 40 and 57 million by 2050.
The total population of the EBRD region, currently numbering 335 million, is forecast to range
between 303 and 341 million by 2025 and 240 and 348 million by 2050 - i.e. between a loss of almost
100 million and a gain of just 13 million.
Page 28
EBRD Region Population Forecasts to 2050
High Variant
Low Variant
Population
(‘000s)
2005
2015
2025
2050
2015
2025
2050
Albania
3 154
3 433
3 703
4 160
3 260
3 274
2 855
Armenia
3 018
3 062
3 094
2 994
2 890
2 718
2 006
Azerbaijan
8 352
9 253
10 088
11 198
8 765
8 923
7 866
Belarus
9 795
9 494
9 177
8 393
9 025
8 149
5 746
Bosnia &
Herzegovina
3 915
3 985
3 955
3 746
3 812
3 544
2 662
Bulgaria
7 745
7 333
6 884
5 917
7 025
6 213
4 131
Croatia
4 551
4 550
4 493
4 355
4 360
4 051
3 121
Georgia
4 473
4 291
4 291
3 797
4 085
3 710
2 575
Kazakhstan
15 211
16 731
18 012
20 835
15 867
15 956
14 298
Kyrgyz Republic
5 204
5 933
6 599
7 891
5 631
5 817
5 404
FYR Macedonia
2 034
2 086
2 116
2 084
1 988
1 886
1 458
Mongolia
2 581
2 941
3 317
4 063
2 776
2 907
2 801
608
618
647
711
590
580
509
Moldova
3 877
3 746
3 723
3 542
3 545
3 266
2 330
Romania
21 628
21 082
20 556
19 013
20 112
18 418
13 317
Russia
143 953
139 950
135 641
129 970
132 990
120 602
88 977
Serbia
9 863
10 193
10 488
11 367
9 747
9 426
8 141
Tajikistan
6 550
7 914
9 516
12 884
7 498
8 362
8 961
Turkmenistan
4 833
5 647
6 453
8 084
5 352
5 687
5 663
Ukraine
46 918
44 492
42 166
37 352
42 360
37 550
25 514
Uzbekistan
26 593
31 463
36 119
45 910
29 828
31 811
31 810
302 850
240 145
Montenegro
334 856
265 105
341 038
348 266
321 506
Total
Source: UN Population Division World Population Forecasts: The 2006 Revision
To illustrate how different the outcome may be between countries, the following chart projects
populations at two extremes, dividing the region into two groups3. For those in the upper band we plot
the rise using the UN’s high fertility assumption; for those in the lower band, the lower fertility. We can
see the population scenarios ranging from a population increase of 97% by 2050 in Tajikistan –
almost doubling, to a fall of 46% by 2050 for Bulgaria – almost halving.
Page 29
Does the size of population matter? There is no ideal size. Countries can be prosperous and
successful with big or small populations.
What does matter are the causes of population shifts and the contexts within which population
changes, affecting the ability of countries to cope with change. If population falls because of high
mortality, low fertility, and a poor quality of life, this is bad news and a problem to be countered.
Equally problematic can be the prospect for poorer countries facing fast rises in population where job
creation cannot keep up with the pace of change. The age structure also impacts on the economic
and social consequences of population pressures.
Strikingly, it is in the EBRD region that we will see the most rapid ageing during the next two decades
worldwide (despite the poor longevity expectation). By 2025, the median age will be more than 10
years greater than it is now in eight of the countries in the region. The number of elderly is already
high in many countries and will continue to rise up to 2025. For example, in Croatia, the proportion of
the population 65 years and older is projected to increase from around 15% in 2000 to 23% in 2025.
Similar outlooks are expected in Bulgaria, Bosnia and Herzegovina and Ukraine.
In the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan, on the other hand, the median age
is declining, partly because of persistent high fertility rates swelling the proportion of the population in
the younger age groups. The Central Asian countries because of their high population growth rates
will remain the youngest in the region.4
Page 30
Big changes in population can be very disruptive to society. In the EBRD region medium and long
term demographic forecasts suggest many sectors and parts of the region may face serious labour
shortages. The potential labour supply in the ageing countries is projected to shrink by more than 10
million in the next 15 years. Elderly dependency rates (the number of people over 65, compared to
the age group of 15-64 years) will increase in all countries, notably in Bosnia & Herzegovina and
Croatia, while Tajikistan, Turkmenistan and Uzbekistan will experience the smallest increases.
However, in countries such as Albania, Armenia, Azerbaijan, the Kyrgyz Republic, Tajikistan and
Uzbekistan, the sharp decline in the child dependency rate (the number of people under 15,
compared to the age group of 15-64 years) will generally offset the increase in the elderly
dependency rate. The total dependency rate (those under 15 and those over 65, compared to the rest
of the population) will fall in 11 countries of the region. Bosnia & Herzegovina and Croatia will
experience the largest increase in the total dependency rate, while FYR Macedonia and Romania will
see almost no change during 2000 to 2025.5
There is a more positive scenario where migration could compensate for labour shortages, labour
force participation could increase and older workers may not decrease in productivity as they age.
However, this scenario depends on the timely implementation of forward-looking policies. Otherwise it
all depends on fertility - and to add to the workforce of 2025, children have to be born today.
Mortality
Mortality is the second main reason after fertility for long-term population change. It is also a key
indicator and reflection of the quality of life.
Since the dissolution of the Soviet Union mortality rates have risen sharply:

The mortality rate in Russia is now 16 per thousand compared with 5 per thousand in the
European Union and 12 per thousand in 1990.

In 2002 the mortality rate in Central Asia was as high as in sub-Saharan Africa.

Even if male life expectancy increases by 20%, the odds of a young Russian male living to 65
would still be 60%, worse than a young man in Bangladesh.6
Child and maternal mortality rates are especially disturbing:

Maternal mortality is 67 per 100,000 births in Russia compared with 13 per 100,000 in the United
Kingdom.

Infant mortality is 45 per thousand in the Commonwealth of Independent States compared with 5
per thousand in the EU.
Page 31
This chart compares the different factors affecting mortality in Russia, with the EU15.7 Deaths in
Russia from non-communicable diseases (such as cancer and heart disease) are three times the EU
average. Injuries - traffic accidents, suicide, violence and work-related accidents - are five times more
important as a cause of death in Russia than in the EU15.
Page 32
Many of the causes of mortality are associated with lifestyle, as these data for risk factors increasing
the probability to develop a disease in Russia, show.8
High blood pressure and high cholesterol together contribute to almost half of deaths in Russia. The
next major risk factor is excessive smoking. In Russia and Ukraine, smoking rates are among the
highest in the world. These are followed by poor diet, and low fruit and vegetable consumption. In
Kazakhstan, for example, 90% of the population do not eat a healthy daily amount of fruit and
vegetables, compared to 75% in Spain.9 Poor diet is also one cause of overweight, the fourth main
risk factor contributing to deaths.
Alcohol and physical inactivity also have significant influences on health. Per capita alcohol
consumption in Russia exceeds the level that the World Health Organisation says endangers health in
a country, leading to accidents, poisoning and violence. People in Russia and former Soviet Union
republics drink more than anyone else in the world. It has been estimated that the average Russian
over 15 years old drinks 15.2 litres of pure alcohol each year. According to a recent report, almost half
the deaths of working-age men in Russia are caused by alcohol abuse.
High rates of alcohol consumption are proving hard to address. For example, recent government
measures such as increasing the tax on alcohol have been unpopular. People simply revert to buying
cheap ‘non-beverage’ products containing alcohol to avoid paying excise duty.10
Page 33
A large number of deaths in Russia are due to a lack of proper infrastructure. Industrial accidents are
around four times as prevalent as in the West. On some estimates, Russian road deaths are about
two-thirds of the total for Europe, which has almost four times the population. Mine accidents and fires
claim hundreds of lives annually.
The healthcare infrastructure has decayed. The Soviet system was designed to combat infectious
diseases, not to cure “civilisation” diseases, such as cancer and cardiovascular diseases. As a result,
Russia and most of the region has too few of the right kind of medical skills.11
Moreover, investment in the healthcare system has declined since the dissolution of the Soviet Union.
In the 1960s, the Soviet Union devoted about 6% of GDP to its health system. Today public health
expenditure in Russia is 3% of GDP and in Uzbekistan 2.4% of GDP, compared with 7% in the UK
and about 13% in the United States.12
Mortality could be even worse in the region if pandemics such as bird flu occur. As it is, important
parts of the region are already in the grip of one of the world’s fastest growing pandemics, HIV/AIDS –
giving us valuable clues as to how vulnerable the region is to pandemics.
On this map, the darkest red indicates the most affected regions in the world. Whilst HIV/AIDS is not
as high in the EBRD region as in the worst regions of the world such as Southern Africa, where 30%
are infected, it is worryingly high.13
In Ukraine and Russia – where population is already falling – HIV infection rates are in the 1 to 5%
category, and the prevalence in the region is rising. It is particularly worrying that about 70% of all
cases are concentrated in ten highly developed regions. In most cities, 5-7% of working age males
Page 34
are HIV positive. In Irkutsk, about 8% of the working population is now HIV positive. HIV is spreading
fast where drug trafficking and use are common, for example in Uzbekistan and Tajikistan.14
Some 80% of people with HIV are 15-30 years old and two-thirds of those are 15-24 years old – a bad
omen for the future. In 2001 only 20% of HIV cases were women. But within three years the
proportion was 38% and in some places more than 50%. Tuberculosis, which frequently accompanies
HIV/AIDS, is at its highest level in the region for 30 years and kills about 80% of HIV positive people.
The increasing prevalence among women suggests that HIV infection is starting to spread more
through heterosexual contact, especially via bridge population groups. These can include sexual
partners of drug users, females having sex with bisexual males, and clients of sex workers. In 2000
only 3% of new registered HIV cases via established paths of infection were due to heterosexual
transmission, but by 2004 the heterosexual share of such cases was 25%.
Experience from elsewhere in the world shows that the first step in combating the spread of HIV/AIDS
is to acknowledge the problem. But sociological studies in the region reveal that public awareness of
HIV/AIDS is low and that risky behaviour is widespread among the general population and vulnerable
groups. In the EBRD region, only about 15% of those who are HIV positive know that they are. HIV
positive people very often find themselves isolated and forced into marginal strata of society.15
For the future therefore the critical uncertainty is whether the HIV/AIDS pandemic in the region can be
prevented from escalating into the really serious, high prevalence levels.
Page 35
High mortality need not be the future. Despite low incomes, social pressures and poor public
infrastructures, many of the risks are within an individual’s control. People can reduce all these risks
by changing lifestyle.
A recent World Bank study shows how economies would gain from lowering preventable adult
mortality to EU15 levels.16 The area between the Scenario 1 and Scenario 2 lines indicates the
economic benefit of the optimistic scenario in Russia - reducing non-communicable diseases and
injury-related mortality rates will have a major macroeconomic and poverty reduction impact. The
expected economic benefits are of a magnitude that easily outweighs the costs of health intervention
and prevention programmes.
Scenario 1 projects the addition to per capita income under current mortality rates in Russia. This
status quo scenario assumes that 2002 levels of preventable adult mortality, i.e. mortality from noncommunicable diseases and injuries, will remain constant until 2025. Real income per head would
rise by only 37% by 2025.
Alternatively, the more optimistic Scenario 2 assumes a 40% improvement in mortality rates to
achieve the current EU15 level, an annual rate of reduction of 4.5% for non-communicable diseases
and 6.5% for injuries. The result would be a 63% increase in income to $16,000 by 2025, to about the
same as the EU15 level.
From the perspective of life expectancy, a 40% improvement in mortality would mean that in Russia
the average man could expect to live to over 70 instead of dying in his late 50s. The average woman
could expect to live to close to 80 instead of dying in her early 70s.
The evidence suggests an urgent need for governments to support individual improvements in
lifestyle by developing policies and programmes which address these alarmingly high mortality rates.
Such interventions are crucial investments in raising welfare and promoting sustainable economic
growth.
Page 36
Migration
Rapid and Large Migration
Globally and in the region, we live in an era of rapid and large migration, across borders and from the
countryside to cities. This is a major factor of change.
The map plots the largest migration flows involving a country in the Commonwealth of Independent
States between 2000 and 2003.17 The large outflow of people from Ukraine to Germany can be
explained by the countries’ proximity and large differences in GDP per capita. The large flow from
Kazakhstan to Germany reflects the fact that Kazakhstan was home to the largest concentration of
Germans in the former Soviet Union and the rather liberal returnees’ law in Germany at the time.
Since 1989 there have been many new migration flows around the region, often by skilled people, not
just poorer people looking for work. In this period a net 3.7 million Russians have moved from CIS
countries to Russia. Net emigration from Russia since 1989 has been about 1.1 million people - less
than 1% of the population, but including a high proportion of skilled people. Two regions in the
Russian Far East, Magadan and Chutkotka, lost 43% and 61% of their population respectively in a
decade, driven by the high cost of living and shrinking economies.18 People are also moving between
the region and the rest of the world, for example outwards to Western Europe and inwards from
China.
Migrants bring valuable skills and offset natural population decline. They can also be part of the black
economy and add to social tension – issues faced worldwide not just in the region. Current Russian
government policy is to liberalise migration rules on the one hand and crack down on illegal
immigration on the other.19
Page 37
Future flows are very uncertain, driven by so-called “push” factors from source countries and the “pull”
factors of host countries. Migration is the hardest aspect of demographics to forecast. For example, a
shock such as climate change may trigger rapid migration from flooded coastal regions or deserts.
The recent flows in the region have clearly been heavily driven by the political and economic
disruptions since the collapse of the Soviet Union.
The China Connection
Migration between Russia and China is an old phenomenon. Tsarist era Vladivostok had a special
police department to deal with the Chinese, Chekhov commenting in 1890 in his account of his travels
in the Russian Far East: “One starts encountering Chinese from Irkutsk onwards […]”.20
Today most Chinese living in Russia are probably temporary residents. But reliable data are hard to
find. There is certainly a large movement of people within Russia, as well as a growing two-way flow
across the Russian-Chinese border. Russians are leaving the Far East for milder parts of the country,
particularly Moscow and St Petersburg, potentially making space for Chinese incomers. The total
population in the Russian Far East fell from 8 million in 1991 to 6.5 million in 2006.21
There are 107 million people in the neighbouring Chinese provinces and the population density on the
Chinese side is 15 to 30 times that on the Russian side. Some 800,000 Russian visas are issued
annually for Chinese, whilst 1.5 million Chinese visas are issued for Russians.
Some press reports claim that excursions from the Far East to China are so common that most
people do not consider it going abroad. There is said to be “a whole generation of people who go to
China to drink, but who have never been to Moscow”. Local attitudes to Chinese are more relaxed in
the Far East, where Russians work as pomogaikas or “little helpers”, going to China all expenses paid
and empty-handed to bring back the 35 kilograms of clothes allowed duty-free.
Officially, 200,000 Chinese lived in the Russian Far East in 2005. According to another estimate,
however, there could be as many as 500,000 Chinese in the Russian Far East, 8% of the area’s
population. By yet another estimate, there are 1 million Chinese in the Russian Far East, a population
forecast to rise to 8-10 million by 2010, which would make them Russia’s second largest ethnic
group.22
In Central Asian countries such as Kazakhstan and Uzbekistan economic ties with China are
increasing in importance, pulling in Chinese investment and workers. Central Asian trade with China
grew from $1billion in 1997 to $9.8 billion in 2006. In Uzbekistan, cross-border commerce increased
by 339% from 2002-2004.23 Chinese investments flow into the region in return for stakes in resources.
Although official migration numbers are lacking, there are many Chinese traders to be found on
Central Asian markets.24
Page 38
Costs and Benefits
Migrants are welcomed in some areas. A Far Eastern farmer quoted by the Financial Times said: “I
would have to employ at least 10 times as many Russians than Chinese to do the work. Russians
either refuse to work for this money or they ask for their pay in the evening and in the morning they
are drunk.”25
But it is clear that a lot of immigrants are needed to achieve population stability. To maintain a
constant total population in the next 50 years Russia would need to admit more than a half million
immigrants annually. If it did so, by 2050 about one-quarter of the Russian population would be
people who migrated in the first half of the 21st century or their descendants.26 Altering the ethnic
balance can be challenging to all societies, no matter what their stage of development.
The Population Picture
Combining natural population trends from fertility and mortality with migration gives a more complete
picture of demographic trends in the region’s countries. The chart below pulls this data together and
shows the variety of trends across the region.27
In most of the Central Asian republics, in the top left quadrant, population is rising naturally (i.e. the
net result of fertility and mortality combined), and it is more or less offset by net emigration.
In Russia and Belarus – bottom right – population is falling but more or less offset by immigration.
In Ukraine, Romania and Bulgaria – bottom left – the population is naturally falling and there is net
emigration reinforcing the reduction of the total.
Only Bosnia and Herzegovina – top right – emerges with rising natural population and net
immigration.
Page 39
Quality of Life and Future Expectations
As we saw from the earlier discussion on population, mortality and migration, no outcome is preordained. Natural trends combined with deliberate intervention can produce good as well as bad or
indifferent outcomes.
Improving the quality of life
There is a strong link between population change and the quality of life. One of the most notable
studies (anywhere in the world in fact) of a major programme to encourage healthier lifestyles was
documented just across the border of the region, in North Karelia in Finland. The results showed that
over a 25-year period life expectancy rose by 6 to 7 years for men and women.28
The community-based health awareness programme was successful in improving the main risk
factors for heart disease, through healthier food, more physical activity and no smoking. These
improvements then began to spread across Finland.
The key to the programme was an innovative approach to involve the community through:

Cholesterol-lowering competitions between villages.

Reality shows on national television in which a group of people would volunteer to make healthy
changes in their lifestyles with the help of experts.

School and workplace programmes to lose weight, quit smoking, eat healthy food in canteens.

Community leaders were educated to pay attention to health-related issues, for example by
discussing smoking and diet with the people they met, promoting smoke-free meeting facilities or
urging local grocery stores to improve the variety of fruits and vegetables on sale.

Anti-smoking legislation had already been passed in the 1970s. Finland eliminated all tobacco
advertising and prohibited smoking in most public places indoors.

Food manufacturers and supermarkets developed low fat dairy and meat products and reduced
salt in some foods.

Encouraging people to grow berries, which flourish in the Finnish climate and have valuable
nutritional content.
In Russian Karelia, across the border, the public health situation is somewhat similar to that in North
Karelia 30 years ago. Now a programme to encourage healthier lifestyles has been started. “But it is a
struggle. People are unwilling to exercise and they drink too much vodka”, explained Gennadi
Batskojev, chief physician at the Aunus Hospital.29 The Northern Karelia project may be an important
indicator of the possibilities for change in coming years.
In Summary: People Matter
People do matter. The future population forecasts currently show a wide variety of outcomes,
between countries and for countries. It is clear that improving the quality of life will be key to changing
the more recent trends of worsening mortality and migrant instability. Population trends take time to
change, hence the need to start early to improve long term options. Population trends will themselves
be interlinked with environmental futures, with the advance of technology and to the future of China.
Demographics are clearly very important for the future of the region.
Page 40
Introduction
The region faces two critical challenges in relation to the environment: pollution, an immediate and
urgent problem, primarily though not entirely local in source, which can be acted on now to find local
solutions; and climate change, a more controversial, uncertain, longer-term, global factor of change,
with the potential to alter the region radically.
There are many different challenges, from drought to flood, from warming to cooling. Pollution and a
deterioration of the environment is primarily located close to the areas of human settlement, albeit
unevenly distributed. Vast areas of pristine landscape are threatened by climate change and in places
by manmade pollution. Demography, technology and the future of China are all interrelated to the
region’s environmental future.
disasters such as Chernobyl to the widespread degradation of regions such as the Ferghana Valley in
Central Asia, otherwise one of the most fertile parts in the world, let alone the EBRD region.
Reversing decades of environmental degradation requires improved production methods and
efficiencies (including energy efficiencies) and the understanding that the longer-term benefit will
outweigh the shorter term benefit. The uncertainty is not so much about what can be done but if and
when there will be action when the upfront cost can be high.
The impact of climate change in the region is highly uncertain (as in the rest of the world). With much
of the region landlocked, rising sea levels do not present as obvious a threat as in other regions of the
world, but nonetheless damage to any of the region’s limited active coastal areas (the Crimea, St
Petersburg, the Arctic coast, and the Far East) could be dramatic. Changes in water availability
(whether scarcity or flooding) are likely as a result of changing water run off patterns. The outlook for
the tundra and permafrost is very uncertain, with the possibility of rapid thawing and the attendant
uncertainties as the region has to alter its whole lifestyle and infrastructure, and as the agricultural
potential may (or may not) improve. In addition, climate change will affect the region’s massive forest
resources and agriculture.
Page 41
Yet, partly because the region has been slow to tackle these challenges, especially pollution and poor
energy efficiency, the potential for improvement is huge. The region can take a global lead in cutting
carbon emissions and seizing control of its own future. Nature and people can create alternative
futures. Kazan participants ranked the environment second in terms of importance for the future of the
region and on average 7.7 out of 10.
An upward spiral of economic progress would be associated with a cleaner environment and by a
region which can make the transition from being polluted and energy wasting to being clean and
energy efficient. Success means raising productivity and production whilst closing or renovating
polluting, inefficient plant. The economic cost of pollution can be seen particularly in the demographic
outlook - a successful economy needs a healthy, productive labour force and social success requires
the region to be a healthy and pleasant place to live. A spiral of decline would be closely allied to
continued high levels of pollution. The already tough choice of closing a polluting plant would get even
harder. Pollution would continue to worsen health, causing labour productivity to stagnate or decline.
A cycle of progress also requires the ability to combat the impact of whatever climate change does
emerge, to ensure that available solutions can be put into play and that global competitiveness is not
damaged. Global climate change will hit all economies and thus one measure of success will be
adaptability to the local impacts. Global political influence will also be affected by the leadership and
cooperative role the region plays in the efforts to limit climate change itself. A spiral of decline will be
worsened wherever the region fails to adapt and protect itself against the worst, and/or fails to exploit
advantages that may arise, for example in Siberia where new economic opportunities could emerge in
the longer run. Environmental damage is a drag on economic growth. Investment in environmental
protection can create employment, boost output and raise productivity.
Linkages with demographics, technology and the future of China
The links between the future of people – demographics – and the environmental challenges is clear
and strong, in both directions, cause and effect. Climate change and environmental quality will drive
new migration flows and settlement patterns where the region’s quality of life is either threatened or
improved. Environmental quality will have a direct impact on health, and thereby on fertility and
mortality. We know that poor health is a primary shaper of these two factors (alongside the other
social choices driving fertility). Equally, people’s behaviour will impact on the quality of life, in
supporting changing energy usage patterns and in pushing for improved quality of air and water in
cities to combat pollution.
Technology, worldwide and in the region, can be an important factor in meeting environmental
challenges, through the technology available to improve energy efficiencies and cut emissions, to the
technology to provide cleaner water and improve waste management practices. Renewed industrial
technology can clean up output and replace current polluting plants and practices. Of course, the
technology has to be applied soundly, as the costs of excessive and misguided irrigation policies in
the Aral Sea region show. Much improvement can be made simply by cleaning up the legacies of the
past, though reversing nuclear waste contamination is an expensive and long term undertaking.
Page 42
More indirectly, technology (notably communications technology) can help through spreading ideas
and new techniques to enable change to take place. New energy technologies, allowing efficiency
and green energy sources, will be an important element where the region should be able to display
advantages.
The future of China and the region’s environment are closely linked. Environmental degradation in
China may spur emigration from China to Russia. Polluted air already moves from China to Russia
and Mongolia. Water pollution, through shared river resources, is already a major problem for both
China and Russia. There is significant scope for cooperation at the global level, as both Russia and
China are under pressure to lead global efforts to curb carbon emissions.
Page 43
Analysis of the Environmental Factors
The environmental challenge has two dimensions: pollution, an immediate and urgent problem,
primarily though not entirely local in source, which can be acted on now to find local solutions; and
climate change, a more global factor of change, with the potential to alter the region radically.
Pollution
A Polluted Region
In February 2007 orange snow fell in three regions in Siberia. It was oil and smelt rotten. But the
region is home to so many polluting industries that it was hard to identify which one might have been
responsible.30 Ulan Bator, Mongolia’s capital city located in a valley closed off by mountains, suffers
from heavy air pollution due to the three coal fired power stations located in the city’s valley, the many
open fires in its slums and the increasing number of cars. The pollution leads to increased health risks
from respiratory diseases and lead pollution.31
On the map above five out of the world’s 10 most polluted sites are in the dark orange coloured part
of the world, the EBRD region.32 These result from a wide range of different causes of environmental
degradation.33

Dzerzhinsk, Russian Federation, is a major centre of Russian chemical manufacturing. Until the
end of the Cold War, the city was one of the country’s main production sites for chemical
weapons. From 1930 to 1998, almost 300,000 tons of chemical waste were dumped, releasing
about 200 separate chemicals into the groundwater. The water now contains 17 million times the
safe limit of phenol - an industrial chemical which can lead to acute poisoning and death.
Page 44
Average life expectancy in Dzerzhinsk is 42 years for men and 47 for women – more than 15
years below the Russian national average.

Chernobyl, Ukraine, where the worst nuclear disaster up to date happened in 1986. A 19 mile
zone around the plant remains uninhabitable. Most of the radioactivity remained trapped within
the plant and some reports estimate that another accident could release more than 100 tons of
uranium and other radioactive products. Leaks have raised fears of rainwater and fuel dust
contaminating the groundwater.

Norlisk, Russian Federation, is an industrial city where the snow is black, the air tastes of sulphur
and life expectancy for factory workers is 10 years below the Russian average. The city, which is
considered the world’s most polluted, houses the world's largest heavy metals smelting complex,
and over 4 million tons of cadmium, copper, lead, nickel, arsenic, selenium and zinc are emitted
each year.

Rudnaya Pristan, in the Russian Far East, is the site of a lead mine. Residents suffer from serious
lead poisoning caused by an old smelter and the unsafe transport of lead concentrate. Lead
concentrations in the ground are excessively high and drinking water, interior dust, and garden
crops are also likely to contain dangerous levels of lead.

Mailuu Suu (see map in box following), in the Kyrgyz part of the Ferghana Valley, is one of the
most fertile parts of the world. But the Ferghana Valley, which spreads across Uzbekistan,
Tajikistan and the Kyrgyz Republic, is also in danger of becoming one of the most polluted. There
are 36 radioactive dumps scattered around Mailuu-Suu, home to an old uranium plant. Almost 2
million cubic meters of radioactive mining waste are accumulated on the site – posing a threat to
the drinking water of the whole of the Ferghana valley because of a high risk of floods, landslides,
mudflows and earthquakes in the area. In April 2005 a huge landslide just missed a major
uranium waste storage area.
Page 45
Pollution in the Ferghana Valley
Source: UNEP/GRID-Arenal
Threats to the environment are cross-border, connected by their cumulative impact on the valley and other
areas of the region.
The symbols on the map give an idea of the scale of the environmental hazards:

The coloured squares show hazardous waste sites.
The propellers mark radioactivity sites.
The dotted lines are around areas of cross-border contamination of soil, air and water.
The arrows point to where industrial accidents are unusually common.
The areas covered in stripes suffer from severe air pollution.
The Ferghana Valley region is prone to natural disasters. Floods, earthquakes and landslides claimed
cost over 500 people their lives between 1994 and 2000, affected ten thousands and according to the UN
caused damage estimated at $3 billion.
The Ferghana Valley, with a population of 10 million, is the most fertile, densely populated region of Central
Asia. Average per capita income is less than $500 a year and 60% of the population lives below the poverty
line. Closed down industrial sites are badly managed, and schools and houses are built on old sites. Active
plants present a challenge to cross-border cooperation – they are an important source of revenue, but many
of them are located on the border and pollute the surrounding area.
The region is moreover severely affected by extensive oil extraction and mining as well as by large-scale use
of pesticides and fertilisers. Environmental pollution and extensive cotton cultivation are suspected to be the
cause of the growth in the number of cancer cases in the region. Zulfiya Islambekova, head of the
cancer hospital in Ferghana city, says the prevalence of the disease is due to a reduced availability of natural
food: "Poor ecology and consumption of products cultivated with extensive use of chemicals can lead to
cancer."
Source: UNEP/GRID-Arendal, Environment
Central Asia/Osh/Khujand area (2005)
and
Security.
Transforming
risks
into
cooperation.
Page 46
High Energy Use
Countries in the EBRD region emit up to 30% more greenhouse gas per unit of gross domestic
product than Western European countries. The countries in the EBRD region were among the largest
energy users in the world in 2003, as charted by the UN’s Millennium Development Goals
programme.34 But it is not easy to cut emissions, especially as the region’s energy needs are
expected to go up by as much as 80% over the next 20 years.
However, all this is a huge opportunity for the region as well. Greater energy efficiency is the biggest
potential source of new energy supply. Improvements in efficiency could cut annual energy
consumption in Russia by up to 40%, contributing massively to offsetting new energy demands.
Ukraine could halve its gas imports (now 70% of its supplies), if it took advantage of all energy
efficiency improvements available. Households in Bulgaria could achieve 40-50% energy savings
through changing their windows or insulation.35 Improved energy efficiency would extend the life of oil
and gas reserves.
Clean-up is very possible
Better energy efficiency and changing fuel usage can dramatically reduce air pollution, a major cause
of poor health and the personal and social costs that go with it. History is replete with good examples
of what can be done. A classic example was the London fog, for which the city was notorious.
Actually, it was what we now call smog – the product of pollution. The smog was caused mainly by
burning coal in homes and in power stations. The dangers were predicted but insufficient action was
taken until 1952, when a particularly severe smog killed 4,000 people. Legislation banning coal
burning brought about a dramatic improvement. One of the power stations is now an art gallery.
Page 47
Climate Change
Potential Climate Change Impacts
Climate change is a global long-term trend and perhaps one the most contentious issues of today,
dividing policymakers and at its extreme threatening life as we know it on the planet. It will affect the
whole EBRD region, unevenly.
A major likely consequence of global warming is a rise in sea levels, which would threaten coastal
areas, including major cities such as St Petersburg. The region of course has a limited coastal area
but where it is habitable it is important. Things can be done. St Petersburg, built in a flood zone, will
soon be kept from further rising sea levels by a 25 kilometre flood protection barrier. This is the
biggest construction project in Eastern Europe, including sluice gates, navigation openings and
underground tunnels for road traffic, and it has been under construction for 26 years. It was 65%
complete when construction was halted toward the end of the Soviet Union and will be operational in
2008.36
But you don’t have to live by the sea to be under threat. Rising temperatures and changing
precipitation will also affect health, agriculture, forests and water resources, all of which are key to the
ecological balance of the vast region.37
Page 48
Health risks will increase as climate change may lead to higher deaths from, for example:

Higher temperatures

Diseases such as malaria

Worsening respiratory diseases.38
Climate change could severely hit agricultural production, diminishing agricultural returns, especially
in areas such as Central Asia. The region’s huge forests will also suffer.
The shifts are potentially gigantic. The needs are to recognise what is happening and be flexible
enough to respond, whether the outcome is good or bad.
In contrast to the pollution challenge, the climate change challenge is harder to tackle. Whilst it may
be possible to limit the pace of global warming by changing human activities, the impact is less clear
than with pollution (though for pollution the economic cost in the short term is clearly a very real and
perceived barrier to action). The ecosystem is complex and the region itself has a varied eco-system.
Furthermore, the sheer scale of available resources (e.g. forest cover) doubtless makes the challenge
seem less urgent – hence the generally liberal attitude to resource use given such apparent
abundance.
Page 49
The Great Siberian Thaw
Siberia may see the most dramatic impact of global warming in the region. Western Siberia is
warming faster than the rest of the world. The average temperature has risen by 3 degrees in 40
years, which is rapid by climate change standards. The permafrost is melting.
The area around Lake Baikal, one of the coldest places in the northern hemisphere, is thawing. In the
process of thermokarsk, rising air temperatures first turn the permafrost into a series of hollows and
hummocks. As the permafrost begins to melt, ponds are formed on the surface, coalescing into ever
larger lakes because the frozen bog beneath prevents the water from draining away. Finally, when the
last permafrost melts, the lakes drain away underground. Thousands of lakes in eastern Siberia have
disappeared in the last 30 years, because of climate change.39
The thawing permafrost also releases huge quantities of methane and carbon. Siberia contains a
quarter of the world’s stored methane, a greenhouse gas produced by ancient rotting vegetation. Over
the coming years methane flux from Siberian lakes is likely to increase, as melting permafrost
releases carbon into the lakes. Bacteria eat this carbon, which causes them to multiply faster, and
emit more methane. The methane may accelerate global warming. Yet in the long run a vast
landmass could become available for living and farming.40 The uncertainties are as immense as the
scale of the region.
Page 50
Looming water crises
Global warming will produce vast changes in evaporation and precipitation, combined with an
unpredictable water cycle. Higher air temperatures will increase evaporation from the world’s oceans,
intensifying the water cycle. They will also mean faster evaporation of water from land, so that less
rainfall reaches rivers. These changes will be accompanied by new rainfall patterns and more
extreme weather events, including floods and droughts.
The map above shows how climate change may alter the distribution of run-off water in the region,
with great contrasts. Run-off water refers to water moving across the land – it may infiltrate into the
ground, evaporate into the air, become stored in lakes or reservoirs, or be extracted for agricultural or
other human uses. In 2050 the black and grey areas are likely to be short of water whilst the light and
dark blue areas are likely to have an abundance of water.
We may see increased competition for water, within and between countries. Cooperation over water
supply and use will become increasingly important within and between countries. Central Asia in
particular is at risk of water shortages as irrigated agriculture accounts for more than a quarter of GDP
in Tajikistan and Turkmenistan, and more than a third in Kyrgyzstan and Uzbekistan.41
Page 51
Human Impact on the Environment: the Aral Sea
Centralised decision-making and socialist central planning in the USSR led to a number of ecological
disasters across the region. One of the most well-known was the diversion of rivers feeding into the
Aral Sea for massive irrigation projects – a decision which resulted in the dramatic, foreseeable
shrinking of the sea. Though its death and disappearance was predicted for 2020, there is now hope
that construction of a permanent dam could save at least part of the Aral Sea and avert catastrophe.
Cooperation among the countries of the region coupled with the advice and support of international
organisations seems to have reversed the sea’s fortune and brought a bit more river water back to the
sea – further evidence that mankind can mitigate and resolve complex, man-made environmental
problems.
In Summary: Environment without Frontiers
The two dimensions of environment – pollution and climate change – will play out in different ways in
the EBRD region over the next 20 years. The region offers many different possibilities, from drought
to flood, from warming to cooling. We start from a position of having many problems, especially
pollution, and we can see how climate change may have some dramatic impacts.
disasters such as Chernobyl to the widespread degradation of regions such as the Ferghana Valley otherwise one of the most fertile parts in the world, let alone the EBRD region. Reversing decades of
environmental degradation requires improved production methods and efficiencies (including energy
efficiencies).
With much of the region landlocked, rising sea levels threatened by climate change do not offer,
proportionately, as obvious a threat as in other regions of the world, but nonetheless damage to any
of the region’s limited active coastal areas would be important. Changes in water availability (scarcity
or flooding) are likely. The outlook for the tundra and permafrost is uncertain, with the possibility of
rapid thawing and the attendant uncertainties as the region has to alter its whole lifestyle and
infrastructure, and lack of clarity whether the agricultural potential would improve.
Yet, partly because the region has been slow to tackle these challenges, the potential for rapid
improvement is huge. The region could take a global lead in cutting carbon emissions and seize
control of its own future. Nature and people can create alternative futures.
Page 52
Introduction
region and the rest of the world widen, leaving the region uncompetitive? At the Annual Meeting in
Kazan, participants ranked technology as the most important factor for the region’s future, at 7.9 out
of 10.
Achieving an upwards cycle of progress clearly requires at least keeping up with global progress.
Falling further behind will almost certainly increase the risk of further decline. The region starts behind
and in many areas is slipping further behind the rest of the world in the fast-changing global
knowledge economy. It is also a region with a great legacy of scientific leadership and could be
developing a new track record in science and technology and, once again, leading the world. One of
the major technological competitors may well, of course, be China, but there is scope for cooperation
too.
technological developments, public and private investment in education, research and the existing
science base, incentives for innovation and entrepreneurs and a modernisation of industry. This
openness is likely to become even more important in the world of open source, co-creation amongst
networks, sharing knowledge and being able to adopt and adapt rapidly. In the networking world,
economies and societies increasingly gain an edge by flexible use of technology rather by than
pinning hopes on being the inventor or in picking technology winners in the style of Japan’s MITI in
past decades.
Page 53
In contrast, a spiral of decline would include legal frameworks (or lack of) which impede innovation,
nationalistic or protectionist attitudes towards science and technology, no investment in education or
incentives for R&D, and failure to renew the ageing capital base. In a world where networking
increasingly holds the key to competitiveness, decline is likely to be characterised by protectionism
that prevents the rapid adoption of technologies – however tempting the protection of knowledge
might seem in the short term.
Linkages with demographics, the environment and the future of China
Progress on technology and competitiveness in the knowledge economy is most directly linked to
demographic futures through education and healthcare. Of the indicators of prowess in the knowledge
economy, it is in education that the region has the best record from the past. But it is slipping in many
countries. Better education will improve workforce skills (not just in technology) and thereby fuel
economic progress. The application of technology on the environment and on healthcare will improve
the physical and mental quality of the workforce, improve productivity and reduce currently wasted
human resources. A larger and healthier working age cohort with a lower mortality rate is likely to be
more receptive to change and innovation than the region’s present populations.
The investment in environmental technology will have a major impact on the quality of the
environment, on energy efficiencies, and on productivity through a renewed capital base of efficient
machinery and communications services. In the energy sector Russia, for example, can play a
leading global role in improving energy efficiency.
The technology link with China may be complex. There are opportunities for cooperation and
competition – for technologies themselves and for skilled people. China is also seeking to improve its
economic, military and political competitiveness through enhancing its workforce’s skills through
environmental improvement, through its own technology and finding its own competitive edge through
R&D and the application of technology. There are no a priori reasons why the future should be
skewed more towards cooperation or competition, but success for the region is likely to require a
strong negotiating position and competitiveness for either form of interaction. The stronger and more
successful China’s economy is, getting closer to being the largest economy in the world, the higher
the bar is likely to be raised for the region to be competitive. Tackling cross-border issues, such as
pollution and climate change, on which the breakneck expansion of China’s economy is having a
major impact, will also require the application of technology and, most likely, cooperation.
Page 54
Analysis of the Technology Factor
Fast and Global Technology
The world of knowledge and technology within which the EBRD region has to compete is changing in
two important ways: the continuous advance of new science and technology, especially as they
combine to create new products and possibilities; and the development of the more open networked
distribution and sharing of knowledge, even though intellectual property remains closely guarded
where possible. These forces accelerate the pace of change and offer new ways for participation by
the region.
Science Frontiers
A global view of science
In this period of continuous and rapid change in science and technology, the next scientific and
technological revolutions will bring together different fast-changing sciences.

Materials science: creating new, lighter, stronger materials, combining nanotechnology with
materials science.

Bioscience: the world is advancing to the point of being able to create new life, to clone – a world
of genetic revolutions and stem cell research. Artificial organs could be developed combining new
biological knowledge, sensors and wireless technologies, and smart biomaterials.

Neuroscience: we increasingly understand our brain, an area where our knowledge has long
lagged behind our understanding of the rest of our physical body.

Information and Communications Technology: perhaps the most familiar new science but still
advancing rapidly, as we embed communications and computing power into new products, into
the body, into our clothing and manufactured goods.

Nanoscience: the world of extremely small science and new solutions to the world’s challenges; a
shift towards molecular level design, in medicine, in engineering, in materials.
An open “Wiki” World
The groundrules are also changing. Science and technology (and wider knowledge creation) is
increasingly networked and co-created, across borders, between consumers and producers, and
between rival companies. It is a fluid world of open source R&D alongside still tightly controlled
intellectual property. Though being at the forefront of science still has its value, in a world of openness
and global networking, the potential for the region to be competitive in new sciences and technologies
is much greater than ever before.
Open Source Success: Networked Innovation
New style innovation often comes about as a collective online project, inviting numerous contributors,
reducing R&D costs. Large companies, rich countries and prestigious universities may not dominate
innovation in the future as they did in the past. The information economy allows technology
development through global research and development, but high costs for specific applications
sometimes make it risky, especially in competitive industries. Private and public sectors may combine
Page 55
resources to develop solutions more quickly, efficiently and mitigate risk. Internet and collaborative
tools may facilitate this, as the open source model drives down costs.
For example, it takes roughly 10 to 15 years and $800 million to bring a new drug to market – figures
which could offer a powerful incentive to manufacturers to collaborate further as the stream of new
“blockbusters” slows and as the power of generics producers rises. A more open source approach to
research could see progress in areas that are not economically attractive at the moment, such as
cures for tropical disease or illnesses that affect small numbers of people (for example,
neurodegenerative disease), based on the principle of larger numbers of contributors directing their
knowledge towards more efficient ends.
Faster and faster change & adoption
With new technologies, new combinations and networking, many envisage a massive jump in science
in the coming years. Futurist Ray Kurzweil has forecast: “We will see more change in the next 50
years than in the last 400”. He envisages that faster, smarter chips and increasingly powerful
computers will rocket towards a “technological singularity” sometime between 2040 and 2080. By
then, change will be so blindingly fast that we just cannot predict where it will go.42 It is hard to prove
or disprove such a grand statement but it is a recognition of the potentially revolutionary times to
come.
We do know that the speed of adoption of new technologies by society is increasing. The chart below
shows the number of years it took for key technologies to be adopted after initial invention. The car,
the aeroplane, and electric power took around 50 years to become adopted by a quarter of people in
the USA. The next waves of products came on stream even faster and the internet took less than a
decade. One can also consider the shift, within one generation, from vinyl to cassettes to CDs to mini
discs to MP3s. This implies we will be inventing the new products of 2025 around 2020!
Page 56
Competing in the Knowledge Economy
Being competitive, keeping up with the fast tech and innovating world, is a complex thing. Just how is
the region doing at the moment?
A recent and ongoing global analysis by the World Bank has examined some of the key aspects of
what it takes to be competitive in the knowledge economy.43 The indices rank countries from 1 to 10.
The best countries in the world come close to 10 out of 10. The studies all show a strong relationship
between GDP growth and the indicators. These rankings are not absolute measures but indicate how
countries compare: so a fall in the ranking can occur even when there has been an improvement in a
country’s performance, if the rest of the world has improved even faster. Being competitive is about
keeping up, of course, not just improving one’s own standards.
The first measure is education, which is based on the adult literacy rate and secondary and tertiary
enrolment. This is an area where the region has historically been relatively well advanced compared
to other indicators though all are still below the average for Western European economies. Scaling
countries in the world from 1 to 10, the region’s countries range between 4 and 8. The challenge is to
build on this legacy and stop the deterioration where it has occurred in recent years. Eight of the
countries in the region, including the most educated top three (Russia, Ukraine and Belarus), have
seen their relative position slip. Being competitive will require more countries to improve their ranking.
Mongolia has shown the most significant improvement, albeit from a relatively lower level, in the past
decade.
Page 57
Russia’s strong education record has been said to distinguish it from emerging market economies
such as India, China and Brazil, the other BRICs. The challenge is to make most out of the scientific
legacy and establish an innovative atmosphere.44 For example, the Russian government spends far
less than China on research. While China allocated $20 billion to the Chinese Academy of Sciences
in 2006, the Russian Academy of Sciences received a subsidy of $1.1 billion. Brain drain is another
challenge. Many talented scientists left the country after the collapse of the Soviet Union. It is
estimated that 4,000 highly trained Russians work in Silicon Valley.45
A second measure is connectivity. It analyses everything from internet and computer usage to
telephone connections. This shows countries in the region, again on the 1 to 10 scale, ranging very
widely, much more widely than education, from as low as less than 0.5 to almost 7. All are below the
Western Europe average. In 10 countries of the region connectivity has fallen compared to 1995, so
more than half of these countries are not keeping up.
Page 58
A third measure is innovation, where a combination of indicators such as the size of the R&D base,
the strength of linkages between universities, government and the private sector, the numbers of
researchers, have seen the region’s countries’ rankings vary widely again, between 1 and 7.5. All are
below the Western Europe average. In 12 of the countries innovation has fallen compared to the rest
of the world.
Russia ranks the highest in the region, and above the world average of 7.2. Yet some lament the
country’s failure to tap its considerable scientific talent for profitable business ideas. President Putin in
February 2007 implored the country’s most prominent businessmen to invest in innovation and
science as a way to diversify away from dependence on oil. To encourage foreign investment in
Russian cities rich in scientific talent, the Ministry of Economic Development is setting up technology
parks with tax breaks in cities such as St Petersburg, Moscow, Nizhny Novgorod and Novosibirsk.46
Page 59
These three measures – education, connectivity and innovation - have been combined into a single
index attempting to measure countries’ readiness for the knowledge economy.
On this scale the countries in the region range from 2 to 6, versus 8.5 for Western Europe. 11 of the
countries have improved since 1995, some quite dramatically. The other eight have all fallen, though
no fall is as dramatic as any rise.
Page 60
A fourth measure looks at how far countries promote competitiveness and innovation in the
knowledge economy. It includes incentives such as tariff and non-tariff barriers, regulatory quality and
the rule of law. On the scale of 1 to 10 countries range between 1.3 and 5.7, versus 7.8 for Western
Europe. Since 1995 the rankings for 11 countries have risen, whilst 8 have slipped behind.
Page 61
This final chart compares the innovation incentives against the knowledge economy indicators education/connectivity/innovation. It suggests that there is a reasonably close link between the
incentives and a country’s position in the knowledge economy. As almost all the countries in the
region – the green dots in the chart – appear below the line, which could be interpreted as showing
that the region ranks well on the knowledge indicators despite the incentives regime – perhaps a
reflection of the legacy. If the incentives dimensions can be improve from their lagging position with
the rest of the world, it is likely that significant advances will be made. It appears pretty clear that if the
region’s countries are to compete with the leading countries (in the top right of the chart), all the
indicators will need to improve significantly - both the knowledge indicators and the innovation
incentives. Better incentives should help ensure that investments in education, connectivity and other
innovation yield more competitive returns.
Overall, how is the region keeping up with the need for change? The verdict is finally balanced: on all
these indicators, education, connectivity, innovation and economic incentives over the past decade
half the countries have been keeping up, i.e. holding or improving their rankings. Success for the
future is likely to need an increasing number keeping up or outpacing the competition.
Page 62
Driving towards the Cycle of Progress
For the countries in the region to progress towards the cycle of progress, in addition to performing
well on issues suggested by the knowledge indicators and economic incentives, there are a number
of specific ways forward: reinvestment in the ageing capital base; exploiting opportunities for
“leapfrogging” with modern technologies; and exploiting the scientific legacy, where there are already
signs of new leadership.
Relative Age of Russian Infrastructure
Rebuilding the Capital Base
For Russia at least (see chart) the capital base needs renewal. In the past decade, the percentage of
infrastructure that is more than 20 years old – the black bars in the chart – has doubled.
Rebuilding this capital base should improve safety, health and the quality of life as well as economic
efficiency, productivity and output. At the bottom of the chart, in blue, there are signs of some
recovery as the capital base has been re-developed in the past five years under study.
Leapfrog Technology
Further hope for improvement comes from the ability of countries to leapfrog technological
generations by rapidly adopting the latest technologies - a classic way in which the new networking
opportunities can be exploited, by using technologies developed outside the region and applying them
to good effect.
Page 63
For example, new communications technologies – the mobile phone, wi-fi networks – have enabled
countries to revolutionise the way they work. Where even the most basic systems of telephony have
never been introduced, for instance, it is possible to skip the landlines altogether and jump straight to
mobile phones – leapfrogging to the technological forefront. New innovations can even allow local
change to outpace progress in the developed world, as is happening in Africa with micro-payments
via mobile phones, providing money transfer to millions of people for whom a bank account is not
available. Vodafone and Citigroup have recently announced a mobile based international money
transfer service. Users send money home via text messages, and receivers can pick the cash up at a
wide range of local outlets, such as mobile network providers’ service points.47
Estonia is particularly strong recent example of the rapid advance in technology usage that can drive
the pace of change, now with more than 280 wi-fi spots in cafes and pubs, clearly marked by black
and orange signposts, two-thirds of which are free to use, and home to the innovative and successful
e-company, the internet telephony enterprise Skype.48
Reviving the Science Legacy
The future can also be built on the past. The region has led past technology revolutions.
Sputnik transformed the world. Today, 18 years after the first GPS satellite was launched, there are
four competing GPS systems, from the USA, Russia, China and the EU – what you might term the
new race for space. The EU has Galileo, China recently sent up satellites to create its own system
and now Russia is planning to launch eight navigation satellites by the end of 2007. It is expected to
begin operating over Russian territory and Europe and Asia, and then go global in 2009.49
Education is critical to build on the science legacy. A case in point is Kazakhstan’s long-running
Bolashak or “Future” programme, which supports 3,000 students at leading universities abroad,
“enabling them to acquire the necessary skills and knowledge to build a democratic and prosperous
society.” 50 The Bolashak programme is designed to train future leaders in economics, public policy,
science, engineering, medicine and other key fields. On their return, graduates must work for the
Kazakh government for five years – a classic example of taking advantage of the global networking in
education to make the jump ahead.
Developing competitive technologies
The area where the region may well be able to develop a competitive edge is in energy related
technologies and as the box shows there is already considerable activity in fuel cells and hydrogen
power. In addition projects such as the Eco-fridge and the growth of electronics companies such as
Sitronics may be a foretaste of the technology and innovation future of the region.
Page 64
Fuel Cells: The Energy Edge?
The hydrogen economy has received increasing attention in Russia, with much of the discussion on
technology development and ways to market, especially since Norilsk Nickel (Russia’s largest steel
and palladium producer) has committed considerable investment to fuel cells technology.
Many universities and research institutes are involved, although mostly they have generally not yet
reached the product stage. Innovative approaches with interesting results have emerged, but there is
no substantial centralised government support for hydrogen R&D. A national hydrogen public-private
partnership has been launched with substantial funds from Russian companies. The renowned
Kurchatov Institute has a leading role, involving about 50 Russian research organisations and
universities closely linked to industrial, energy sector and space requirements for fuel cells. Hydrogen
technologies are also being developed using the facilities of former nuclear weapons development
centres.
Norilsk Nickel may be interested in hydrogen fuel cells as both a producer and consumer. Fuel cells
rely on metals such as palladium and platinum for power conduction, and Norilsk Nickel sees the
development of fuel cell technology as an expanding market for its metals production. The company
plans to start producing hydrogen fuel cells in 2008. General Motors also recently announced that it
will open a new research and development science office in Moscow in an effort to leverage Russian
science institutes and universities on an array of technologies, including fuel cells.
Source: Alexandra Baker, ‘Fuel Cells and Hydrogen in Russia – a survey of current developments’,
Fuel Cell Today, 26th July 2005
Page 65
Innovative Examples
The EBRD has been working with a number of new technology leaders in the region, such as
ecoFridge.
Developed by Ukram, a Ukrainian-American group of companies, ecoFridge is a patented system
that is set to revolutionize the transport of perishable goods. It has resulted from the networking of
knowledge between an ex-NASA space scientist and Ukrainian physicists and engineers. Leading
international food producers, shippers and retailers including Nestlé Schöller and leading UK
supermarkets, have already shown interest in the silent and environmentally-friendly technology.
In February 2007, the London and Moscow Stock Exchanges saw the IPO of Sitronics, Russia’s
largest industrial conglomerate of high tech companies based in Zelenograd, also known as
“Russia’s Silicon Valley” because of its cluster of technology firms. It was Russia’s first high-tech
IPO, and London’s second largest technology IPO. Sitronics has offices and factories in 25
countries. The company recently signed a deal with internet networking giant CISCO to become
partners in the former Soviet Union, combining CISCO’s internet protocol products with Sitronics’
local know-how in markets such as Kazakhstan and Ukraine.
Kintech Technologies is collaborating with Russian research laboratories on a wide range of high
technology applications – hydrogen energy, nanotechnologies, materials and environmental
protection. It is very active in fuel cell technology. And certainly building on the shoulders of giants,
privately owned Independent Power Technologies (IPT), is developing alkaline fuel cells using
technology from the Russian space programme.
Sources: Claire Vogt, ‘Eco-Fridge revolutionizes food transport’, EBRD Feature Story, November
2006; ‘Sitronics to list in London and Moscow’, Financial Times, 10th January 2007; Baker, ‘Fuel
Cells and Hydrogen in Russia’, Fuel Cell Today, July 2005; Jennifer Schenker, ‘Russia’s venture
capital boom. Tech startups come of age’, Business Week, 25th May 2007
Page 66
In Summary: High Tech, High Stakes
region and the rest of the world widen, leaving the region uncompetitive?
technological developments, public and private investment in education, research and the existing
science base, incentives for innovation and entrepreneurs and a modernisation of industry.
In contrast, a spiral of decline would include legal frameworks which impede innovation, nationalistic
or protectionist attitudes towards science and technology. In a world where networking increasingly
holds the key to competitiveness, decline is likely to be characterised by protectionist or technology
nationalism approach that prevents the rapid adoption of technologies.
The region starts in a position of needing to do a lot more to catch up and then to keep up with the
fast-changing global knowledge economy. It is also a region with great experience and could be
starting a new track record in science and technology and even showing leadership.
Page 67
China on the Move
Introduction
The future of the EBRD region will be significantly shaped by relations with China to the east and with
the EU to the west. China already has the world’s largest population. Its economy is growing at a
phenomenal rate and is projected to become the largest economy in the world before 2050. India, a
near neighbour of the region, also is growing fast. Together they account for a third of the people on
the planet.
Along with other emerging markets, China and the countries of the EBRD region share similar
challenges: achieving sustainable growth, improving the quality of life, managing the environment,
alongside demographic pressures. China is investing heavily in technology to try to deal with these
challenges. Kazan participants scored the future of China at an average of 6.7 out of 10, a little lower
than the other three forces in terms of importance for the region.
Bordering the world’s future largest economy could be a great economic benefit and stimulus, but it
may also put the region under enormous economic pressure. The size of the impact may be in part a
function of the pace and scope of China’s economic development. China is a major investor in and
buyer of the region’s natural resources, its strong and growing demand exerting an increasing degree
of power over the origins of those resources. The economy may also be a major market for higher
value-added exports from the region. Equally, any problems for China as it seeks to overcome the
economic and environmental hurdles ahead could mean a worse future for the region such as the
spillover of pollution and of lost markets in China. Booming economies in China and the region will
attract migrants in both directions. But if one economy is weaker than the other, it could lose valuable
skills to its neighbour. A weakening of China’s competitive power can be both an advantage and
disadvantage for the region. The relationship with China will have important implications for the EBRD
region’s relationship with Europe, the large neighbour to the West.
Page 68
There is another impact to consider, that of the economic model and the subtle competition between
different paths to economic success. The more successful China’s model - often termed “authoritarian
capitalism”, led by the Communist Party - the more it offers an alternative to the “market with
democracy” model adopted in the EBRD region. It will therefore be important for the transition model
to be seen to be successful and to be preferred to more authoritarian approaches. Equally, the more
open the Chinese economy, integrating into the global marketplace, the more the open model will be
seen in a favourable light.
For China itself, success will be in overcoming the economic and environmental hurdles, achieving
sustainable growth and a maturing economy in which the share of higher value-added activities
increases and that of low-cost manufacturing decreases, the service sector growing and China’s
external payments become more balanced. Environmental management would reduce externalities to
an acceptable level. Success would include the encouragement of education and training to allow
China better to innovate, openness to the global flow of ideas and investment in environmental
sustainability, for example in electricity generation and ecocities.
Decline for China would see growth hitting various barriers, upsetting the steady path of growth of the
past few decades, economically and environmentally disruptive in many ways both to China and to
the global economy, with the potential to turn the country inward, protectionist and disappointed.
Linkages with demography, the environment and technology
China is much more than a very big and increasingly important neighbour. It is linked with the region
through migration, cross-border pollution, economic competition, trade and investment, political and
military power and the evolution of its development model. Like the region, China is not bound to
follow one future. There are alternatives and significant uncertainties, which have been the main focus
in the China analysis in this project.
Migration from China into the region, particularly into Russia, is increasing and the Chinese could
become the second biggest ethnic group in Russia. These flows will be influenced by the success or
otherwise of job creation in China itself.
Cross-border pollution between China and the region is growing and having a direct impact on the
region. At the global level, China is now the world’s biggest emitter of CO2, which is likely to have a
further impact on the region through global warming and climate change. The region’s own poor
energy efficiencies have a similar impact at a more local level, requiring action. The cross-border and
global dimensions place a premium on international cooperation.
As competition from China intensifies, the importance of the region keeping up with the rest of the
world in technology, education and innovation increases. China’s huge and growing investment in
R&D contrasts with less impressive efforts in most of the region.
Page 69
Analysis of the China Factor
The Largest Emerging Market
Many measures of China’s transformation are extraordinary. But the prospect of it becoming the
world’s biggest economy is perhaps the most dramatic.
This chart shows China overtaking Japan soon, then overtaking the four largest EU economies
(France, Germany, Italy, and the UK), and finally surpassing the USA by 2040.51 While China will still
be poor in income per capita, by the 2020s the richer coastal provinces, with a population exceeding
that of the US, can also expect to enjoy an income per capita on a par with the US of today.
Nor is China the only BRIC to challenge the incumbent economic powers. The chart also shows India
overtaking Japan and the EU4 by 2045. The Russian “BRIC” remains much lower in size (very similar
to Brazil) and as we have seen in energy, can exercise power where its niche is especially significant.
These are just projections, but they illustrate the shift in relative sizes taking place.
China’s growth will be reflected in the increasing weight of its currency in the international system, its
influence in international organisations such as the Bretton Woods institutions, and the global reach of
its companies.
Page 70
From ‘Made in China’ to ‘Invented in China’
Another measure of China’s rising importance is its ability to innovate, not just manufacture.52 The
chart shows that in 2006 China’s expenditure on research and development overtook Japan for the
first time. China now ranks fifth in world in the number of patent filings – more than Germany.
In the last decade, R&D has more than doubled as a share of China’s GDP. The number of students
has quadrupled since 1998 to 16 million, and the country is building 100 world class universities
specialising in science and engineering. A quarter of foreign PhD students in the US are Chinese,
though there are concerns that too many of these overseas graduates are staying abroad.53
Page 71
Source: Arup
Sustainable infrastructure for the millions
Innovation will be critical in meeting environmental challenges – both pollution and global warming.
China has embarked on an ambitious programme of building the world’s largest ecocities to try to
tackle urban pollution.
These futuristic pictures are impressions of Dongtan Ecocity which aims to be the world's first
sustainable city. All buildings will be powered by renewable energy, it will be self-sufficient in water
and food will be sourced from the surrounding farmland. The city is expected to have 80,000
inhabitants by 2020. They will be encouraged to use the zero-carbon public transport, which will be
powered entirely by renewable energy. The goal is for the city to generate zero carbon emissions, to
cut average energy demands by 60% and for water consumption levels to be down by 43% from
average. The city’s energy will come from wind turbines, bio-fuels and recycled organic material.
Waste will be reused as compost or biomass; human sewage will be processed for irrigation and
composting. Dongtan has been an inspiration for London urban planning.54
Page 72
China is also taking other steps to try to manage its environment. Already under way are:

Giant wind farms dotting the country’s east coast.

Fuel economy standards which are 20% more stringent than in the US.

Heavy investment in public transport.

Participation in emissions trading.
Looking further ahead, by 2020, not far from our time horizon, China aims to have:

More than 20 new nuclear power stations.

A climate strategy, designed to curb emissions and promote more efficient energy use, under
which efficiency will be 20% higher by 2010 and the share of renewables in the mix will be 16%
by 2020 (mandatory under the National Renewable Energy Law).55
China and the EBRD Region
The future of China and the EBRD region are intertwined, through increasing trade and
investment, through China’s demand for resources, especially from Central Asia, and through
pollution of rivers and desertification which do not respect borders.
There are also substantial people flows. If, as some forecast, there are between 8 million and 10
million Chinese in Russia by 2010, they will be the second largest ethnic group in the country.
Bilateral trade between China and Russia is booming, topping $30 billion in 2006. During a
summit in spring 2007, the Russian and Chinese presidents agreed to aim for an increase in
bilateral trade to $60-80 billion by 2010. About 90% of Russian exports to China are natural
resources, mainly oil. China is also the main market for Russian weapons. The Russian
government is keen to diversify its exports to include more machinery and other industrial
products.
China is playing a rapidly increasing role in Central Asia. Trade between China and Central Asia
has also increased: from $1 billion in 1997 to $9.8 billion in 2006. Between 2002 and 2004,
Central Asian trade with China grew by 145%, with Uzbekistan leading the way with a 339%
increase in Chinese trade turnover. Much of the commerce is low-level trade between China and
its border Central Asian countries, particularly Kyrgyzstan. Central Asian markets are full of
Chinese traders and China is making many investments to help develop the energy infrastructure,
in return for stakes in resources. Tajik hydroelectricity, Turkmen and Uzbek natural gas, and
Kazakh oil are already being bought by the Chinese, though delivery is still difficult. The
establishment of the Shanghai Cooperation Organisation reflects the extension of this resource
relationship into the wider political/international relations domain.
Sources: Gennady Novik, ‘China’s Hu to seek energy deals in Russia’, Reuters, 26th March 2007;
Peter Burnett and George Magnus, ‘A route to riches on the new Silk Road’, Financial Times, 22nd
December 2006; ‘The Shanghai Six at five’, The Economist, 8th June 2006.
Page 73
Economic and Environmental Hurdles
Source: Natalie Behring / Panos Pictures
There is clearly a strong expectation that China will grow and grow. Yet China has to jump many
practical hurdles if its growth is to continue without interruption.56 Sustainability will depend particularly
on jumping the economic and environmental hurdles.
Unbalanced Growth
Maintaining balanced economic growth is a major challenge for China.
Development of the financial system has not kept pace with economic growth. State-owned banks
have to support inefficient, old industries. Huge trade surpluses are putting upward pressure on the
currency – the pegging of the renminbi being a particular bone of contention between China and the
US, echoing the dollar/yen pressures during the years of Japan’s economic ascendancy.
Not everyone is part of the consumer boom in China. The income of the rural population is falling far
behind the income of those in coastal regions, driving massive migration into the cities in search of
work and income. Between 10 to 13 million Chinese migrants are likely to move to urban areas each
year. Planned urban construction is equivalent to creating a New York City every year for the next 10
years.57
Page 74
Massive demand for resources
Resources are already strained. Chinese demand is one of the main reasons for very high world raw
material prices. Unless resource bottlenecks are eased, China may have increasing difficulty in
keeping up its growth rate – with consequent problems for incomes and employment.
The colossal and soaring appetite for electricity is the most dramatic example. Just the new air
conditioners added in one year will absorb the entire output of the massive, recently completed, Three
Gorges Dam.58 Between 2000 and 2005, energy consumption rose by 60%. China is now building
about two power stations every week. The amount by which China increased its power production in
2006 is greater than the UK's entire capacity.
Energy is used inefficiently. At Western living standards, each person in China will use 3 times more
energy than Americans do now.59 Up to 2030 the increase in greenhouse-gas emissions from China
will equal the increase from the industrialized world.60
Emissions Giant
China became the world’s biggest greenhouse gas producer in 2007 – ahead of earlier forecasts.
China’s CO2 emissions rose by 9% in 2006, compared to 1.4% in the US, and now account for 22% of
global emissions. Yet because of higher wealth levels the average American still pollutes between five
to six times more than the average person in China.61 As a result, air pollution is one of China’s most
severe environmental problems.
The consequences are serious for China itself:

16 of the world's 20 dirtiest cities are in China.

The city of Linfen, the centre of China’s coal industry, has the worst air quality on Earth.62

The inhabitants of every third metropolis breathe polluted air.

400,000 people each year die from pollution-related illnesses.

Half of China's cities and counties suffer from acid rain.63
An increasing number of local protests in recent years have been provoked by environmental
degradation, mostly against factories polluting farmland or water supplies. Yet air pollution is not a
pressing concern to everyone: “Why worry? Bad air quality is a direct result of our soaring success,”
says a Chinese businessman.64
Page 75
Source: Qilai Shen / Panos Pictures
Water Scarcity: Biggest Constraint to Growth?
Water may be the most pressing problem for the future of China.
China has 20% of the world’s population but only 7% of its freshwater resources (similar to the
equivalent of the total freshwater in Lake Baikal) and demand keeps rising. Two-thirds of its major
rivers and lakes are heavily contaminated. An estimated 300 to 600 million people use unsafe water.
Among China’s 600 cities, 400 have water shortages. Beijing’s water table is falling rapidly. The
Yellow River is often so low that on 200 days a year it hardly reaches the sea.
Since the 1980s, China’s grazing herds have reduced its grasslands 15,000 square kilometres, an
area the size of Connecticut, each year. Availability of water in the provinces north of the Yangzi,
which have some 40% of the country’s population and a similar share of its GDP, is only about 20% of
the average availability in southern provinces.65
Page 76
Environmental Degradation
The map shows the scale of China’s environmental challenges.

The yellow dots mark heavily polluted cities.

The bright green areas represent deforestation.

The dark green patches, mainly across northern China, are sandy deserts and semidesert steppes, such as the Inner Mongolian desert. These are the origin of increasingly
common sand and dust storms and are closing in on cities.

The white areas show rapid melting of glaciers, such as the Himalayan glaciers – which
reduces river flows.

The red lines are around areas of severe industrial pollution.
China’s environmental degradation is challenging economic growth. The World Bank
estimates that the ensuing costs from air and water pollution amount to $100 billion a year,
or 5.8% of the country’s GDP.
Source: ‘The Downside of the Boom. China’s Poison for the Planet’, Der Spiegel, 1st
February 2007; Cost of Pollution in China: Economic Estimates of Physical Damages, World
Bank Report, 2007
Page 77
In Summary: China on the Move
In the past two decades it has become increasingly clear that China is once again becoming a major
player on the global stage, in part by being the source of a massive flow of cheap manufactured
goods (helping to keep global inflation down), on the other being a major consumer of the world’s raw
materials (helping to raise commodity prices). Because of the size of its population, it is on course
under present trends to become the largest economy in the world, a ranking last seen in the 1830s
when today’s No 1, the US, was still finding its feet and exploring its own continent. Not passing
unnoticed, in China communist rule continues with a gradual inclusion of capitalism and markets.
There are many uncertainties for China’s future, a number of hurdles to overcome to achieve
success. The environment and the demand for resources and the need to keep a number of
economic and social imbalances in check are very significant hurdles. These challenges will not only
have an impact on China’s future but will spill over to neighbouring countries. The future of the EBRD
region clearly will be influenced by the progress of its growing neighbour and the interrelationships will
be important. As panellist Liqun Jin noted in Kazan: “China’s impact on the region could be very
positive as long as both sides cooperate”.
References
1
Steven Elke, ‘Russia faces demographic disaster’, BBC News, 7th June 2006
United Nations, World Population Prospects: The 2006 Revision, http://esa.un.org/unpp/
3
For this exercise the rising countries are those where the median forecast for 2050 is for a rise, the
fallers where the median 2050 forecast is for a fall.
4
A. Banjeri, G. Betcherman and M. Chawla, From Red to Gray – The “Third Transition” of Aging
Populations in Eastern Europe and the Former Soviet Union, World Bank 2007
5
A. Banjeri, G. Betcherman and M. Chawla, From Red to Gray – The “Third Transition” of Aging
Populations in Eastern Europe and the Former Soviet Union, World Bank 2007
6
Nicholas Eberstadt, Russia in Asia - Asia in Russia. Energy, Economics and Regional Relations,
Woodrow Wilson International Center for Scholars 2004
7
Patricio V. Marquez, Dying too Young. Addressing premature mortality and ill health due to noncommunicable diseases and injuries in the Russian Federation World Bank Publication 2005
8
9
World Health Survey 2007, World Health Organisation, 2007
10
J. Rehm and G. Gmel, ‘Alcohol Consumption and public health in Russia’, The Lancet 369, 16th
June 2007
11
Julie DaVanzo and Clifford Grammich, Dire Demographics. Population Trends in the Russian
Federation, RAND 2001
12
Beyond Scarcity: Power, poverty and the global water crisis United Nations Development
Programme, The 2006 Human Development Report
13
2006 Report on the Global AIDS Epidemic, UNAIDS, 2006
14
Russia in 2015, Development Goals and Policy Priorities, UNDP 2006;
15
John Tedstrum, Global Business Coalition, ‘Public Health Crisis in Russia’, heard at the EBRD,
London, 5th March 2007; ‘A sickness of the soul. Russian health and demography’, The Economist,
September 7th 2006; Stephen Boykewich, ‘The new red scare. AIDS invades Eastern Europe’,
Business & AIDS, Winter 2006
16
17
Mansoor, Ali and Bryce Quillin eds., Migration and Remittances: Eastern Europe and the former
Soviet Union World Bank Report 2006: 36-37
2
Page 78
18
Timothy Heleniak, ‘Migration Dilemma’s haunt Post-Soviet Russia’, Migration Information Source,
October 2002
19
‘Market forces. Immigrants in Russia’, The Economist, 18th January 2007; ‘Russian official defends
new decree on migrant workers, vows stricter enforcement’, International Herald Tribune, 22nd
November 2006; Dan Bilefsky, ‘Efforts to integrate Russians in Latvia stoke tensions’, International
Herald Tribune, 23rd November 2006; ‘Exodus’, The Economist, 25th January 2007
20
‘Fears grow of Chinese moving into Russian east’, Financial Times, 1st December 2006
21
‘When dragons dance with bears’, The Economist, 30th November 2006
22
Svetlana Soboleva, ‘Economic migration to Western Siberia’, Russian Regional Perspectives
Journal 1-2, The International Institute for Strategic Studies; Vilya Gelbras, ‘Chinese migration in
Russia’, Russia in Global Affairs 2 2005
23
‘Central Asia: Politics and geography constrain trade’, Oxford Analytica, 1st March 2007
24
‘Go west, young man’, The Economist, 4th January 2007
25
‘Fears grow of Chinese moving into Russian east’, Financial Times, 1st December 2006
26
Replacement Migration. Is it a solution to declining and ageing populations?, United Nations
Population Division, 2001
27
Mansoor and Quillin eds., Migration and Remittances World Bank Report 2006
28
Pekka Puska, ‘Successful prevention of non-communicable diseases: 25 years experiences with
North Karelia Project in Finland’ Public Health Medicine 4 (2002); ‘Doctors Cajole Whole Towns To
Change Unhealthy Habits’, Wall Street Journal 14th January 2003
29
‘International visitors learn about school lunches in Joensuu’, Helsingin Sanomat 15th September
2005
30
‘Orange snow causes concern in Siberia’, The Guardian, 3rd February 2007
31
Victoria Wall, ‘Pollution chokes Ulan Bator skies’, BBC News, 19th February 2007
32
‘World’s Most Polluted Places’, Blacksmith Institute: http://www.blacksmithinstitute.org/ten.php
33
Environment and Security. Transforming risks into cooperation. Central Asia/Osh/Khujand area
UNEP/GRID-ARENDAL, 2005; ‘World’s pollution hotspots mapped’, BBC News, 18th October 2006;
Rob Edwards, ‘Flooding of Soviet uranium mines threatens millions’, New Scientist, 16th May 2002;
Rob Edwards, ‘Human health may be the cost of a nuclear future’, New Scientist, 10th June 2006
34
The Millennium Development Goals Report 2006, United Nations, New York, 2006
35
Energy Efficiency: A Burning Issue, EBRD Fact Cards, December 2006
36
Kate Dunn, ‘Saving Peter’s City from Floods’, EBRD Feature Story, 2007
37
United Nations Framework Convention on Climate Change:
http://unfccc.int/essential_background/background_publications_htmlpdf/climate_change_information
_kit/items/305.php; Met Office Hadley Centre for Climate Prediction and Research
38
‘Climate Change in Russia – Possible consequences for the health’, Civil G8 Forum, 2006
39
Fred Pearce, ‘Climate warning as Siberia melts’, New Scientist, 11th August 2005); ‘Siberia’s pools
burp out nasty surprise’, New Scientist, 6th Sept 2006
40
Gregg Easterbrook, ‘Global Warming: Who Loses – and Who Wins?’, Atlantic Monthly, April 2007;
Alistair Doyle, ‘Winners from global warming?, Reuters, 2nd April 2007
41
Beyond Scarcity: Power, poverty and the global water crisis, United Nations Development
Programme, The 2006 Human Development Report
42
Kurzweil, Ray, “Human life: the next generation” New Scientist, 24th September 2005
43
I. Goldberg, M. Trajtenberg, A. Jaffe ea, ‘Public Financial Support for Commercial Innovation.
Europe and Central Asia knowledge Economy Study Part I’, Europe and Central Asia Chief
Economist’s Working Paper Series 1-1, January 2006; World Bank Knowledge for Development
Project:
http://web.worldbank.org/WBSITE/EXTERNAL/WBI/WBIPROGRAMS/KFDLP/0,,menuPK:461238~pa
gePK:64156143~piPK:64154155~theSitePK:461198,00.html
44
‘Brains boxed in. Eastern Europe’s technology boom’, The Economist, 1st March 2007; ‘Russian
education in the context of the UN MDGs: current situation, problems and perspectives’, Human
Development Report for the Russian Federation, 2005
45
‘Russia unable to tap science for profit’, International Herald Tribune, 16th March 2007
46
‘Russia unable to tap science for profit’, International Herald Tribune, 16th March 2007
47
‘Innovation Briefing: Leap-Frog Disruption’, Innovation Update, Innovaro , 30th April 2007; ‘Principle
8: Leapfrogging’, Worldchanging.com, 15th May 2007
48
Clark Boyd, ‘Estonia embraces web without wires’, BBC News, 5th May 2004
49
‘Russia stakes a claim to the satellite business’, The Observer, April 2007
50
See http://www.edu-cip.kz/eng/index.php.
Page 79
51
‘Dreaming with the BRICs: the path to 2050’, Goldman Sachs Global Economics Paper 99, 2003
‘The dragon’s lab: how China is rising through the innovation ranks’, Financial Times, 5th January
2007; ‘India and China are the only real Brics in the wall’, Financial Times, 4th December 2006;
Economic Survey of China, OECD 2005
53
China fears brain drain as its overseas students stay put’, The Guardian, 2nd June 2007
54
Steve Schifferes, ‘China’s eco-city faces growth challenge’, BBC News, 5th July 2007; ‘Visions of
Ecopolis’, The Economist, 21st September 2006
55
Emma Graham-Harrison, ‘China rejects emissions caps that hobble economy’, Reuters, 17th April
2007
56
Will Hutton and Meghnad Desai, ‘Does the future really belong to China?’, Prospect Magazine,
January 2007; Martin Wolf, ‘China Cracked’, Financial Times, 2nd February 2007; ‘”The Chinese
miracle will end soon.” Interview with China’s deputy minister of the environment’, Der Spiegel, 7th
March 2007; Andreas Lorenz and Wieland Wagner, ‘Red China, Inc. Does Communism work after
all?’, Der Spiegel, 27th February 2007
57
Guangming Daily, 19th July 2006; DCDC Global Strategic Trends Programme 2007-2036
58
E. Downs, ‘Energy Security Series: China’, The Brookings Institution, December 2006
59
‘The Downside of the Boom. China’s Poison for the Planet’, Der Spiegel, 1st February 2007
60
IEA forecasts; ‘The Impact of Asia’s Giants’, Time, October 2006; ‘The Downside of the Boom.
China’s Poison for the Planet’, Der Spiegel, 1st February 2007
61
‘China building more power plants’, BBC News, 20th June 2007
62
‘As glaciers melt and rivers dry up, coal-fired power stations multiply’, The Guardian, 20th June
2007
63
‘Life in China’s Coal Land’, BBC News: Changing China, 22nd January 2007
64
‘Protectionism and pollution, China’s twin pitfalls’, Financial Times, 10th January 2007;
‘Environmental damage stirs public anger’, Financial Times, 3rd July 2007
65
‘The Downside of the Boom. China’s Poison for the Planet’, Der Spiegel, 1st February 2007; Nils
Blythe, ‘Water woes plague China’s economy’, BBC News, 2nd July 2007; ‘Pollution forces China
water cut-off’, Financial Times, 5th July 2007; ‘Fish dying in the Yellow River’, Asia News, 18th January
2007; Jonathan Watts, ‘The green campaigner who is making China clean up its act’, The Observer,
8th July 2007
52
Page 80