Dev't Of Middle Corridor As Viable Route Demands National, Regional Reforms - OECD (Exclusive Interview)

(MENAFN- Trend News Agency) BAKU, Azerbaijan, July 11. Developing the Trans-Caspian International transport Route (TITR, or Middle Corridor) as a viable route will require both national and regional reforms, Amélie Schurich Rey, Economist and Policy Analyst, Eurasia Division, OECD Directorate for Global Relations and Cooperation, told Trend in an exclusive interview.

Ways to develop the Middle Corridor

"Given sufficient investment and smoother procedures to reduce transport costs, the Trans-Caspian International Transport Route (TITR), also known as the Middle Corridor, could become an attractive complementary trade route linking Kazakhstan to Europe, one of its main trading partners, as well as boosting regional trade. However, if the TITR can bring about a substantial increase in regional trade, it will remain an alternative trade route at the international level," she said.

As economist noted, the TITR's geography requires more multi-modal switches between road, rail, and maritime transport, as well as more border crossings, than the Northern Corridor.

"Even if the route could, in the long run, be shortened, it suffers from a lack of attractiveness for the private sector. In addition, with its current capacity, the TITR can only absorb around 5 percent of the 100 million tonnes that were carried through the Northern Route, and this share is not expected to grow beyond 11 percent by 2030. However, at the regional level, the development of the route could better integrate economies of Central Asia and the Caucasus, and contribute to the further development of local growth poles," Amélie Schurich Rey said.

She pointed out that implementing the potential of the TITR as a regional trade route will require substantial investment in transport infrastructure and better“soft” trade facilitation arrangements.

"If transit through the Caspian littoral countries has more than doubled since February 2022, the lack of adequate road, rail, and maritime infrastructure, as well as trade facilitation agreements along the route, has led to severe port and border point congestion. Developing the TITR as a viable route will require national and regional reforms in relation to regional integration, infrastructure, trade facilitation, and supranational co-ordination," economist said.

Kazakhstan as a key transport hub

As she noted, Kazakhstan benefited from renewed interest, due to its key location on an alternative trade route: the Trans-Caspian International Transport Route, which offers the country an opportunity to leverage its strategic regional position.

"Bordering China and Russia, Kazakhstan is located at the crossroad of major trade routes, such as the Northern Corridor and the North-South corridor to Iran, and it represents an entry point to the Central Asia - Caucasus regional market. If, so far, more than 80 percent of Eurasian rail freight transits through Kazakhstan, developing the TITR could further develop freight through Kazakhstan's access to the Caspian Sea. In 2022 alone, Kazakhstan's Caspian Sea cargo transportation volumes increased 6.5-fold compared to 2021 to 891,000 tons, while overall container shipments along the TITR increased by 33 percent, reaching 33,600 TEUs in 2022. During the first seven months of 2022, Kazakh exports through the Caspian also increased ninefold year-on-year, although businesses reported operational difficulties and congestion in ports," Amélie Schurich Rey said.

An economist pointed out that participation in the TITR is expected to produce positive spill-over effects on Kazakhstan's economy.

"Improved logistics services could reduce Kazakhstan's overall transit dependence on Russia and boost its trade capacity, with an expected increase by 70 million tonnes (mt) of its exports by 2030 compared to 2021. In turn, a better capacity to export will bring new opportunities to promote industries producing more sophisticated processed goods and contribute to the diversification of the country's trade basket. If Kazakhstan's distance penalty to major markets, such as Europe, cannot be fully eliminated, participation in the TITR can nonetheless improve regional transport connectivity, reduce trade costs, and increase trade volumes," she noted.

Kazakhstan's sustained economic growth

According to Amélie Schurich Rey, for over two decades, Kazakhstan has enjoyed a period of sustained economic growth supported by an ambitious reform agenda targeting increased contribution of the private sector to economic development, diversification of employment, output and exports, and integration in regional and international value chains.

"However, growth remains highly dependent on primary commodity exports, particularly hydrocarbons and metals. Among regional peers, only Turkmenistan and Azerbaijan have more concentrated export baskets than Kazakhstan, which also largely exceeds the concentration of comparable resource-rich OECD countries such as Australia and Canada. In 2023, hydrocarbon products still accounted for over 53 percent of all exports and generated 15 percent of GDP. Data from the Bureau of National Statistics suggest that the primary sector as a whole (hydrocarbons, metals and agricultural products) generated over 85 percent of total exports in 2023," she said.

As economist noted, this continuing reliance on hydrocarbons and minerals reflects low levels of competitiveness in processing sectors, the underdevelopment of the private sector, especially small and medium enterprises (SMEs), and connectivity barriers that firms continue to face in international trade.

"In addition, the country's trend rate of growth has also been gradually declining over the past two decades, which might be indicative of the fact that the boom in the commodity sector has not been matched by productivity growth in other sectors, notably agriculture and services," she added.

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