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Trans-Caspian Corridor Boosts Asia-Europe Trade and Economic Growth

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Trans-Caspian Corridor Boosts Asia-Europe Trade and Economic Growth

The Trans-Caspian International Trade Route, facilitating Asia-Europe trade, is expanding amid challenges, with significant investments aimed at diversifying trade routes and stimulating economic growth.

The Trans-Caspian International Trade Route (TITR)—a trade corridor stretching from western China through Central Asia and the South Caucasus to Europe—has gained prominence since early 2022. The shift came as shippers sought alternative routes for international commerce after Western nations imposed sanctions on Russia due to its military aggression against Ukraine.

From China, the route threads through Kazakhstan, across the Caspian Sea to Azerbaijan and Georgia, then branches towards Europe either through Turkey or over the Black Sea. The TITR’s development is not a sudden thing but rather expansion of a vision shared by Azerbaijan and Kazakhstan and initiative by them on a bilateral basis over six years ago. Bolstering trade across the Caspian, they set the stage for what would become the TITR.[1]

Often referred to as the “Middle Corridor,” the TITR has attracted the attention and support of major international financial institutions (IFIs).

These include the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), and the World Bank, along with national agencies like the US Agency for International Development (USAID). Their interest was further justified by a recent World Bank report, which noted a 33 percent jump in container traffic along the corridor in 2022. Yet, this growth also brought to light several challenges—ranging from border congestion and transshipment hurdles to coordination issues—that have caused significant transport delays.[2]

The spotlight turned sharper when a notable dip—a 37 percent decrease in container traffic during the first eight months of 2023 compared to the same time-frame in 2022—underscored the urgent need for infrastructural and operational enhancements. In response, countries along the corridor, including Azerbaijan, Georgia, and Kazakhstan, have embarked on an ambitious upgrade initiative. Supported by IFIs, these nations, along with Turkey, agreed on a “road-map” in November 2022, delineating key actions and investments required. Azerbaijan, for its part, has pledged substantial investments in its port and rail facilities to support these efforts, aiming to smooth out the corridor’s wrinkles and ensure its role as a key player in Eurasian trade.[3]

Azerbaijan, with its strategic location and advanced infrastructure, in fact stands at the crossroads connecting Central Asia and Europe. The country has actively engaged with IFIs to leverage this unique position, enhancing the TITR’s efficiency and forging stronger transport and connectivity links. This outreach extends beyond the TITR framework, encompassing Central Asian countries not directly involved in the corridor, such as Uzbekistan, demonstrating Azerbaijan’s ambition to serve as a vital link across the region.

For Azerbaijan, the TITR is more than an initiative for trade diversification. It elevates the country to a central transit hub, promising a substantial boost to the economy. For Central Asian and South Caucasus countries, many of which are heavily reliant on Russia for imports, the TITR offers a significant chance to diversify trade routes. This shift aims to reduce their dependence on Russia while unlocking access to new markets in the Middle East, North Africa, and potentially, South and Southeast Asia. Azerbaijan’s pivotal role is underscored by its expected contribution to the rising trade volumes, thanks to its strategic positioning and burgeoning trade capabilities.

By encouraging the production of more complex and higher-value goods, the TITR could spur economic growth in these countries, promote political stability, and fuel job creation. While it faces competition from other transcontinental and maritime trade routes, the TITR’s unique alignment with regional aspirations for economic development and diversification sets it apart.

A recent study by the International Bank for Reconstruction and Development (IBRD, World Bank) has brought fresh insights into the potential of the TITR.

Unlike earlier analyses by the EBRD, ADB, and USAID, the IBRD study used a sophisticated trade model to forecast demand and outline necessary actions to accommodate this growth. The model predicts a 30 percent surge in trade between China and the European Union by 2030, with westbound flows poised to account for 62 percent of the total trade volume. It anticipates a 37 percent increase in trade from Azerbaijan, Georgia, and Kazakhstan, highlighting Kazakhstan’s exports as a key driver. Moreover, the total trade between these countries and the EU is expected to grow by 28 percent.[4]

The IBRD’s approach offers distinct advantages over a prior EBRD study, particularly its focus on the South Caucasus and its detailed examination of specific logistical improvements required for the TITR, offering a more nuanced understanding of the corridor’s potential and the challenges it faces.[5]

This is complemented by the commitment of the United Nations Special Program for the Economies of Central Asia (SPECA) to enhance the TITR. Launched in 1998, SPECA has largely flown under the radar, striving to bolster cooperation among Central Asian nations and Azerbaijan—and recently Afghanistan—to help integrate them into the wider global economy. SPECA celebrated its 25th anniversary last November in no other city than Baku, signalling a concerted intention to broaden regional ties under SPECA’s umbrella.[6]

The anniversary was marked by a transport forum and trade working group meetings, culminating in a summit of SPECA countries’ heads of state on November 24. These gatherings underscored Azerbaijan’s crucial role in enhancing Central Asia’s connectivity and underscored a shared strategic vision, particularly between Azerbaijan and Kazakhstan, focused on energizing the energy, transport, and communication sectors.

Azerbaijan again seized this moment to articulate its vision of becoming a central hub in Eurasian transport and logistics. This vision encompasses not just the development of logistical infrastructure but also a re-imagining of the region’s economic corridors through the TITR’s development, where the heart of SPECA’s agenda lies in enhancing connectivity in order to overcome the inherent logistical challenges and high costs associated with the Central Asian states’ geographical position.[7]

Azerbaijan’s championing of the TITR looks likely to cement its central role in Eurasian logistics. This will in turn allow Baku to leverage its geographic advantages for broader economic development and integration, driving regional connectivity and diversification as well. This is quite a forward-looking approach, and it is emphasized by strategic investments and international endorsements. The TITR will drive economic cooperation across the Central Asian and Caspian/Black Sea macro-region, and that will influence, in turn, the evolution of the structure of the international system and how the crisis anticipated in the early 2040s will be resolved.[8]

REFERENCES

[1] “History,” Middle Corridor, https://middlecorridor.com/en/about-the-association/history-en, accessed 7 April 2024.

[2] “The Middle Trade and Transport Corridor: Policies and Investments to Triple Freight Volumes and Halve Travel Time by 2030,” International Bank for Reconstruction and Development, https://www.worldbank.org/en/region/eca/publication/middle-trade-and-transport-corridor, accessed 7 April 2024.

[3] Robert M. Cutler, “Is the Trans-Caspian Corridor ready for prtime time?” Asia Times, 2 June 2022, https://asiatimes.com/2022/06/is-trans-caspian-corridor-ready-for-prime-time/, accessed 7 April 2024.

[4] See note 2.

[5] European Bank for Reconstruction and Development [EBRD], “Sustainable transport connections between Europe and Central Asia,” EBRD, https://www.ebrd.com/news/publications/special-reports/sustainable-transport-connections-between-europe-and-central-asia.html, accessed 7 April 2024.

[6] United Nations Economic Committee for Europe [UNECE], “Transforming the SPECA Region into a Connectivity Hub with Global Outreach,” UNECE, https://unece.org/speca/events/2023-speca-economic-forum, accessed 7 April 2024.

[7] “UN Programme for the Economies of Central Asia: Transforming Central Asia into a connectivity hub,” EuroNews, 29 November 2023, https://www.euronews.com/business/2023/11/29/un-programme-for-the-economies-of-central-asia-transforming-central-asia-into-a-connectivi, accessed 7 April 2024.

[8] Robert M. Cutler, “Europe in the ‘New’ International System,” Strategy International, 31 March 2022, https://strategyinternational.org/2022/03/31/europe-in-the-new-international-system-2/, accessed 7 April 2024.

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