The Analytical Group of AzVision.az

Middle Corridor: What is the Diagnosis? | Long Read

// The symptoms are there, but with no grave illness

T

he World Bank foresees an overall increase in trade between China and the EU by about 30 percent by 2030, should there be suitable logistics and transport conditions. Nonetheless, the prognosis requires having a well performing corridor to turn into reality. China and Europe are located on different ends of the world with whopping 9 thousand kilometres between them. Finding a new transport route to circulate goods between these two addresses has become a focal point for the entire world. Although the Middle Corridor is considered a favourite, the World Bank experts see numerous challenges in operating it. How true are these claims and what can we do to eliminate the shortcomings?

We’ve recently been observing a steadily growing demand for a new route between China and Europe, but there were leaps at two stages that especially stood out. The first one happened as Russia had to face Western sanctions and the North Corridor closed down when the Ukraine war broke out. The sea routes had to shoulder the burden of goods traffic between the east and the west as a result. The second stage occurred as the Yemen Houthis got more involved in the Red Sea as military operations unfolded in Gaza. Their attacks on ships became a serious threat for the sea route through the Suez Canal, once again highlighting the urgent need for a reliable land route from China to Europe.

In fact, the options are not too abundant. The route called the Middle Corridor is the peerless option, which is exactly why cargo traffic along the MC grew by 33% in 2022 compared to 2021. For some reason though, recent discussions about it tend to highlight the problems along the corridor rather than its advantages.
Manipulative information about the Middle Corridor is ever growing

It looks as though an information war has broken out over the Middle Corridor. Operating the corridor at full capacity and turning it into the main traffic route between China and Europe in the future will stimulate development and boost geopolitical importance of the countries along it. Unfortunately, there are interest groups who do not want that to happen. They see discrediting of the MC as an element of the ‘hybrid war’ waged against the stakeholders of the project. Some centres under the influence of these groups deliberately accentuate the possible problems rather than the advantages the corridor has to offer. How serious are the said problems? AzVision.az has tried to answer the question.

Global or a ‘Regional’ Project?!

World Bank’s report called the ‘Middle Trade and Transport Corridor. Policies and Investments to Triple Freight Volumes and Halve Travel Time by 2030’ lists the following as hindering problems for the project:

·  Lack of corridor coordination and management among countries,

·  Poor operational efficiency of the ports on both the Caspian and Black Seas,

·  Problems on railways end-to-end infrastructure, specifically delays at border crossing points,

·  Lack of a uniform regime and integrated transport solutions among the countries,

·  Too much paperwork and low digitization at border crossing points. 

The time required to cover the distance between the points along the Middle Corridor (in 2022 and 2030)

World Bank experts believe that traffic capacity at the MC has hit its absolute ‘ceiling’ due to these bottlenecks, reversing the effects. Container traffic decreased by 37% in the 8 months of 2023 compared to the same period in 2022. Having summarized all the problems, the report authors have reached a conclusion that the MC will be a regional project that also occasionally transports transcontinental goods rather than a global route. Over 60% of cargo traffic along the corridor will run among the regional countries in 2030. Kazakhstan, Azerbaijan, and Georgia will account for the main growth. The MC will largely be dominated by Kazakhstan’s exports. It will handle a little over 5% of EU-China trade by 2030. The experts at the World Bank thus want to articulate that unless the required reforms are put in place, the MC has reached its capacity in terms of China-Europe cargo transportation.

Dynamics of goods transported on the Middle Corridor. Source: World Bank report

But how accurate is this approach? Are the problems raised by World Bank experts for sake of ‘diagnosing’ in fact as grave as they claim and what do we need to do to solve them?

Diagnosis and Treatment

‘The Middle Corridor is by no means a regional project, because it will become a key portion of China’s global One Belt One Road initiative’, says Wang Qi, Executive Director of the Joint Institute for China-Russia Strategic Cooperation, Tsinghua University, to AzVision.az.

‘This project, called the Trans-Caspian International Transport Corridor, is a strategic transport route connecting China with Europe through Central Asia and Azerbaijan. With a multifaceted significance for the region and Europe, the project will have a profound impact on economic development, political stability, and cultural cooperation’, Ms. Qi says.

She says the corridor offers a shorter alternative route to European markets compared to the traditional sea routes, thus significantly cutting delivery times. It also produces new partnership opportunities between Europe and countries along the corridor, thus creating a large field of political and economic cooperation on the continent. It allows Central Asia to export goods and natural resources to European markets and attract foreign investment.

At the same time, it would not be accurate to consider the MC a transport route only. It greatly serves the formation of new economic dynamics, deepening of mutual cultural relations between Asia and Europe, and overall development of stakeholders.

Problem 1: Ports

While discussing the problems raised by the World Bank report, Elshad Mammadov, professor of Economics, says the approach on economic efficiency is not groundless. He believes the tariffs at Georgian ports are too high and competitive. There is a need to apply flexible tariff mechanisms. Otherwise, the Middle Corridor might not be able to bear the pressure of the competitive conditions so habitual in the field of transport and logistics.

Elshad Mammadov: ‘A flexibly tariff policy and other stimulating measures, quotas and concessions can eliminate all problems.’

‘The tariff policy is currently not very efficient. We must apply other mechanisms that would boost dividends for the MC stakeholders and progressively develop freight transportation’, professor insists.  

Azerbaijan owns up to its shortcomings, while taking operative steps to eliminate them. Alat seaport reports that they are hard at work to up the annual capacity from 15 million to 25 million tons of cargo and reception capacity from 100 thousand TEU containers to 500 thousand. The second phase of the project will launch this year. The investments in the port starting 2023 are all related to these measures. The countries are carrying out joint projects between the Aktau-Kuryk-Baku and Poti ports to coordinate operations at these ports.

Problem 2: Border Crossing Points

The more countries a route crosses, the greater the delay along it because every country enforces its own bureaucratic procedures. They have different customs infrastructure and digital indicators at checkpoints. Some of the factors complicating the bureaucratic procedures include the multi-modality of cargo traffic and transportation, such as land, railway, and sea transport all in a single corridor, and engagement of several institutions within one country. Speed along the corridor will wholly depend on how effectively the countries apply innovative solutions and digitalization.

Time comparison among the MC points. The least amount is wasted in Azerbaijan.

Kazakhstan is a member of the Customs Union and Georgia of the World Trade Organization, while Azerbaijan is a member of neither, which translates to states with three different economic models. Stakeholders must introduce coordination, uniform tariff, and simplified customs systems. The problem does not lie within a single country. The multitude of countries and variety of tariff regimes within their territories complicate the matter at hand. Meanwhile, Azerbaijan, Georgia, and Kazakhstan launched a joint logistics company in June 2023 for a better synchronization.

The MC will naturally not become fully functional should the countries not deal with these issues, hog the blanket, and prioritize their personal interests, and not simplify document flow and customs regimes. That being said, Azerbaijan and Türkiye have coordinated efforts with Central Asia in recent years, working intensively on discussing bilaterally and multilaterally the potential problems that might arise in the MC, switching to a simplified customs system, centralizing management, applying digital solutions, and building uniform inspection and tariff systems.

Economy expert Khalid Karimli says in his interview to AzVision.az that no one is denying the complexity of these projects but proactive and systematic efforts by Central Asia, Azerbaijan, Türkiye, and the Organization of Turkic States will lead to the solution of the issues raised by the World Bank. 

‘The WB report points out that the rapid solution of these issues will dramatically boost the transmission capacity of the MC. The corridor will also be one of the most cost-effective routes to deliver goods from China to Europe. The problems have been identified and there is will and determination to solve them. The heads of state and government, ministers of foreign affairs, of communications, and transport across the countries are hard at work. They are establishing commissions and are quite active.’

Khalid Karimli: ‘We can solve the common problems together’

The solution of the mentioned challenges has naturally never been a task for a single country to tackle. These are issues to be addressed within mutual agreements. The countries recognize this necessity, take consistent systematic steps, while planning to benefit from modern technologies, which shows that a centralized and simplified solution of the possible bureaucratic obstacles on the MC is quite achievable.

Azerbaijan is currently employing innovative approaches in digitizing customs infrastructure and checkpoints. This practice must be adopted by other countries as well. If they do not have enough resources to address it, regional investment centres can be a solution.

There is No Problem That Cannot Be Solved!

Experts from Kazakhstan, one of the crucial links on the MC, also admit to the problems, while saying they are completely solvable. Magbat Spanov, Professor at Kazakh National University, Expert at the Institute of Innovative Economics says in his video interview to AzVision.az that issues regarding port and railways infrastructure and cargo handling mechanisms need solving.

Building specialized information centres, pooling efforts, digitizing the economy and transport logistics can eliminate the problems and accelerate cargo delivery. Transport infrastructure issues also need to be addressed. The key factor in achieving the targets mentioned above is not merely words, but common will and desire.

‘The strategic positions of countries within the MC depend on the resources required. The Middle Corridor is thriving thanks to those resources. For instance, expanding the railway line in Kazakhstan is an important prerequisite for a faster goods transit from China to Europe. Such decisions prompt all the countries within the OBOR project to act and invest in the project’, the expert emphasized.

Magbat Spanov: ‘There is both will and desire to solve problems’.

Kazakhstan and Azerbaijan are the locomotives in the MC project. The routes in these two countries are easier as they run through plains. Outstanding works have been done over the years to boost both the attractiveness and the capacity of the route. Kazakhstan has built Zhezkazgan and Beyneu-Shalkar stations and the Kuryk port to shorten the route running from the east to the west of the country and expand railway construction.

Azerbaijan has modernized the railway in its territories and is now working on switching to an alternating current, which translates to a cheaper shipping by 20%. The railroads used to run on direct current in the country. We have acquired 40 modern AC electric locomotives. The driver crew in these locomotives can handle 500-600 km without a change. The crews used to shift every 200 kilometres.

Georgia, a mountainous country, is another link on the MC. Road projects running through mountainous terrains are both pricier and more time-consuming compared to plains. Nevertheless, Georgia has seen heavy investing in its transport sector. For example, Chinese companies are building a highway through the Rikoti Pass. Despite the complex mountainous-forest terrain, they are restoring the Marabda-Kartsakhi road. The most important project, however, is the construction of the Anaklia Port, where Georgia state will own 51% of the shares, and Chinese companies the remaining 49%.

All these projects will boost the cargo traffic capacity on the railroads of the country to 48 million tons.

Information War

The Middle Corridor is such a big project that minor technical and logistical challenges can in no way diminish its significance. Rauf Aghamirzayev, a transport and logistics expert, goes into detail on the issue in his videocast with AzVision.az. He pointed out several manipulative aspects in statements on the Middle Corridor. He believes there is a competition among various routes, while very complex events are unfolding in our region. This competition at times seeps into the media landscape. ‘We must be ready for it. Azerbaijan and other stakeholders must constantly step forward with counterarguments and promote the corridor more aggressively’, the expert explained.

Rauf Aghamirzayev: ‘We must be ready to defend the Middle Corridor from information attacks.’

Rauf Aghamirzayev finds it crucial to remind the information manipulators of one important point: bureaucratic factors play a regulatory role when the corridor is not fully built. ‘We can switch to a more facilitated regime when the ways are fully completed, and the ports are fully functional in all countries. Building infrastructure is not something simple that only requires a certain decision; it needs time.

Say, we have all simplified the procedures, but if Azerbaijan and Kazakhstan have ready infrastructure at hand, but Georgia doesn’t, the cargo will pass easily through our two countries and eventually be stuck in Georgia. Bottlenecks must first be tackled. Several projects will most likely be delivered this year, thus simplifying bureaucratic challenges, and providing for smoother transitions.

If the infrastructure isn’t ready, simplifying the process might make matters worse. As more cargo arrives, getting stuck at some point, it will produce the opposite effect, which translates to correlation. Say, Georgia does not boast the same potential as Azerbaijan or Kazakhstan. One is the locomotive country in South Caucasus, whereas the other is of Central Asia. Georgia, however, lives a different reality when it comes to both financial and natural resources. Despite all this, I am still quite optimistic about the project. The Baku-Tbilisi-Kars project will also launch next spring, which will open new doors’, the expert stated.

The Zangazur Link

There could be one other way to diversify the Middle Corridor. Western think tanks do not want to consider it for some reason. The World Bank report does not even mention the Zangazur corridor, whereas implementing the project can largely affect cutting time and costs while transporting goods on the MC.

Zangazur Corridor may become an important branch of the Middle Corridor

Azerbaijan has done a lot in this direction these past three years. Accessing Nakhchivan will translate to rearranging the transport map of the region. The reason that makes the Zangazur Corridor so unique is that it provides a shorter access for Central Asia to the Mersin Port, as Nakhchivan is located at a crossroads.

Julfa has historically been a junction for accessing the Persian Gulf. It was announced late last year that the Kars-Igdir-Sadarak road would also be built and commissioned over the following 5 years. This means that as the Zangazur corridor launches into operation, it can stimulate traffic boost on the Middle Corridor.

Conclusion

The route called the Middle Corridor does indeed have obstacles that prevent fast and cheap transportation. But they are mostly in place as the corridor is not fully functional, with some infrastructure problems along the route. A uniform transport mode along the corridor will become possible as they are fully built and commissioned, with no further difficulties, because the stakeholders are personally interested in it.

All in all, the Middle Corridor is the best option for cargo transportation between Europe and China. Meanwhile, there are powers wanting to overshadow the prospects of the corridor for subjective reasons. They are either doing it to lobby for an alternative route or they do not want to see the MC countries grow stronger. Therefore, they are trying to paint a contorted picture of the prospects of the corridor through spreading manipulative information. This means that the MC needs protection on the media landscape and the MC stakeholders must pool efforts in this direction.

If Western institutions are indeed so concerned about it, they can support and allocate funds to build infrastructure in Georgia, the closest participating country to them, very similar to how Azerbaijan is currently helping Georgia to complete the Baku-Tbilisi-Kars project. The cargo traffic capacity will be upped to 5 million tons as this road becomes fully operational.

The Middle Corridor is rationally the best option for all parties. There is no real alternative which is both serious and beneficial to all. Economics, above all, is a science of rationality. 

  28 March 2024    Read: 1628    Can be read: 3 min.

3 min.