World Bank Study Recalibrates Middle Corridor

For Azerbaijan, the TITR not only diversifies trade routes but also positions the country as a key transit hub in the region, potentially boosting its economic growth.

For the countries of Central Asia and the South Caucasus in particular, which rely significantly on Russia for imports (in the case of Kazakhstan, 39% of all imports), the TITR presents an opportunity to diversify trade routes, reduce dependence on Russia, and open up new markets in the Middle East and North Africa, and eventually in South and Southeast Asia.

In this way, it may stimulate those countries to produce more complex and value-added products, promoting political stability by bolstering economic growth and fostering job creation. Other transcontinental and also maritime routes compete for intercontinental trade, but the TITR aligns with the aspirations of countries in the region for economic development and diversification.

The new IBRD study introduces a novel approach not undertaken by previous studies by the EBRD, ADB, or USAID. In particular, it employs a sophisticated model in order to assess comprehensively the expected trade demand for the TITR. It then examines the actions that are required to meet such increased demands for transport.

The trade model forecasts a 30% increase in trade between China and the European Union by 2030, primarily driven by westbound flows, which are expected to represent 62% of the total trade volume.

Trade from Azerbaijan, Georgia and Kazakhstan is expected to increase by 37% (with Kazakhstan's exports being a major contributor), and their total trade with the EU is expected to increase by 28%.

Azerbaijan's strategic location and growing trade capabilities are expected to make a significant contribution to this increased trade volume.

The IBRD study offers three advantages over an EBRD study that was concluded earlier this year and which was presented in Kazakhstan over the summer. The first is that the EBRD focused only on Central Asia and on selecting the optimal corridor there from three possibilities. (The one chosen runs principally through southern Kazakhstan.)

The IBRD study, however, concerns principally the South Caucasus, narrowing its focus to Azerbaijan, Georgia and Kazakhstan. The second is that its trade model permits a more granular examination of specific logistical upgrades that are necessary.

The third, perhaps the most geo-economically significant, is to recalibrate the TITR as an“economic corridor,” meaning that it is not just a“pipeline” for end-to-end solutions but moreover has the vocation of connecting up with the hinterlands of the countries through which it passes.

With a proper policy environment, this would encourage the formation of small and medium-sized enterprises in the countries concerned, leading to the creation of a more numerous middle class capable of guaranteeing political stability and legitimacy.

In addition to re-imagining the TITR as an“economic corridor,” the IBRD study makes four general recommendations for improving efficiency.

First, it insists on offering corridor-length logistical solutions for streamlining operations and reducing route fragmentation. Second, it is necessary to reform and simplify processes and procedures, particularly customs and data exchange.

Third, without requiring a one-size-fits-all end-to-end approach to digitization, it explains the need for real-time visibility and faster information sharing in an environment where the handling of printed paper documents is still sometimes the standard method of operation.

Finally, it points out the need to focus on connectivity and equipment acquisition (particularly railway rolling stock) in undertaking the continuing improvement of infrastructure and equipment.

On the basis of the IBRD model, it is possible to project the potential for the TITR (“Middle Corridor”) to triple its volumes by 2030 while halving transport times, if the recommended improvements are implemented.

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While potentially unlocking trade and development growth for Central Asia and the South Caucasus, the corridor also offers economic and geopolitical resilience for transcontinental trade.

The IBRD study's focus on the South Caucasus underscores Azerbaijan's significance as a regional conduit for trade in the region. The report noted the need to ameliorate operational inefficiencies so as to maximize corridor use. It is worthwhile to mention that Baku has made significant strides in offering corridor-length logistics solutions.

The modernization of the country's port and rail systems, under way already for some years, responds to the need imperative for logistical improvements.

Implementation of this development policy includes not only its building-out of the Port of Alat, but also Baku's contribution to overcoming bottlenecks in the Baku-Tbilisi-Kars railway, a key infrastructure segment that looks now to quintuple its (nevertheless still relatively modest) container flows in the near future.

The main challenge now is to establish platforms where the main stakeholders can work together to address operational challenges and invest in infrastructure. Azerbaijan's active participation in these platforms is crucial, given its strategic location and investment in corridor infrastructure, to achieve the desired efficiency and transparency.

In order to promote efficiency and transparency, the IBRD concludes that this investment should come from the private sector at least as much as from the state sector of the participating countries. How this is to be accomplished is the subject of current discussions.

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