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The first representative of the Ministry of Transport of Uzbekistan, M. Omarov, met with representatives of the European Commission delegation within the framework of the Trans-Caspian International Transport Corridor Coordination Platform. Uzbekistan is seeking a stronger transport infrastructure in the region, which could be helped by the construction of the Kyzylorda (Kazakhstan) – Uchkuduk (Uzbekistan) railway line.
The creation of a modern link between these cities would benefit the whole region in terms of integration and trade relations. However, the construction of the railway would also make a significant contribution to strengthening the idea of the Trans-Caspian International Transport Corridor. The latter is often mentioned when dealing with the current logistical situation in the region in relation to the interests of the European Union and exports from China.
Uzbekistan has applied to the European Bank for Reconstruction and Development and the European Investment Bank for funding for this project as part of the coordination platform. The project is being prepared jointly by the Ministries of Transport of Uzbekistan and Kazakhstan.
After the outbreak of the armed conflict in Ukraine, the issue of developing transport corridors that would not pass through Russian territory became more pressing than ever. In this regard, special attention is paid to the Middle Transport Corridor, which until recently was considered a weak alternative to roads through Russia. Will the new route be able to replace the traditional transport arteries connecting China and Europe?
From first plans to implementation
The Middle Trade and Transport Corridor or Trans-Caspian Transport Route is an infrastructure project through which goods can be delivered from China to Europe through the territories of Kazakhstan, Azerbaijan, Georgia and Turkey, that is, bypassing Russia. The idea of the project was first expressed in 2013, and the first practical steps to create the necessary infrastructure and remove trade barriers between the participating countries began in 2015.
Before the events of February 2022, many experts and politicians were quite skeptical about the idea of a transport corridor, emphasizing the existence of a number of problems, such as opaque pricing and logistical difficulties. But the lack of special interest in this route from China was especially emphasized: “In the absence of China’s geo-economic involvement, the development of the Middle Corridor still has little economic basis.”
Transport corridor in the context of Ukraine
The situation changed greatly after the start of the conflict in Ukraine: business immediately turned its attention to the Trans-Caspian transport corridor.
Thus, according to the International Association TITR, which unites shipping companies and ports, the volume of transportation along this corridor in 2022 increased by 86% and reached 2.8 million tons compared to 1.5 million in 2021 – then 586,000 tons were transported in 2021. According to the World Bank, in 2022 the volume of container traffic on this route increased by 33% compared to 2021
Political interest in expanding freight transport capabilities across Central Asia has also grown markedly: in November 2022, Azerbaijan, Georgia, Kazakhstan and Turkey signed a so-called road map that identifies priority areas for investments and activities needed to improve the Trans-Caucasus Transport Corridor (TCTC). In June 2023, Azerbaijan, Georgia and Kazakhstan agreed to create a single logistics operator.
The importance of the new route was also discussed in Brussels: European officials announced Europe’s intention to abandon the transit of goods through Russia, through which 86% of goods from China passed before the war.
The EU’s interest in the new transport route is expressed not only in words, but also in concrete steps. Thus, in January 2024, the Global Gateway Investors Forum for EU-Central Asia Transport Connectivity was held in Brussels, during which politicians and businessmen made a number of important statements directly related to this project. In particular, it was announced that the forum participants would invest $10 billion in the development of the region’s transport infrastructure.
In addition, the European Commission announced:
● the launch of the EU-funded Regional Transport Programme, which will be adopted in 2025 (Regional Transport Programme). Under this new programme, the EU will offer technical assistance to modernize and maintain transport routes.
● creation of a Coordination Platform to quickly solve current problems that require joint efforts of partners.
● the emergence of new positions in the Ministries of Transport of all five Central Asian countries from 2024, which will directly work on the implementation of the new transport corridor.
For its part, the European Investment Bank (EIB) signed memorandums of understanding totaling €1.47 billion with the governments of Kazakhstan, Kyrgyzstan and Uzbekistan, as well as the Development Bank of Kazakhstan. These loans will be possible thanks to guarantees provided by the European Commission.
Finally, the European Bank for Reconstruction and Development (EBRD) signed a memorandum of understanding with Kazakhstan, with an investment portfolio of €1.5 billion. These funds will be used to implement already selected projects.
Current issues
Despite the fact that in light of the armed conflict between Russia and Ukraine, the transport corridor began to be used more and more often, and European and regional politicians expressed full support for the project, many problems have not been resolved, as World Bank experts write about in a special report dated November 2023 .
“The capacity of the UK was not exhausted, however, problems with border crossing, transshipment and coordination led to very large delays in transportation and a subsequent return to alternative corridors. As a result, the volume of container traffic in 2023 (over 8 months) decreased by 37% compared to the same period in 2022,” the study emphasizes.
What worries business today:
● Cost of transportation. With reference to surveyed transportation participants, World Bank experts state that one of the main problems is the cost of transporting goods, which is comparable to the cost of transportation through Russia, although that route is much faster.
● Transportation time. In 2022, transporting goods from Dostyk or Khorgos to Constanta via the UK took an average of 50-53 days, which is twice the time required when transiting through Russia.
Why is this happening:
● Lack of a single operator who would be responsible for transporting cargo along the entire route. Currently, customers need to track their cargo on the websites of different country operators.
● The second limitation is related to the low operational efficiency of ports on the Caspian and Black Seas, as well as maritime transport in the Caspian Sea.
For example, some ports do not operate when the wind at sea is very strong, which immediately affects the speed of cargo delivery. For example, in September 2023, the president of the NC Aktau International Sea Trade Port, Abay Turikpenbaev, said that their mobile inspection complex cannot operate in strong gusts of wind.
● The third limiting factor is the lack of end-to-end rail infrastructure, which causes delays when cargo needs to be moved from rail to sea.
● Delays at border crossing points due to the lack of a single operator.
● Integration of document flow (each country has its own documents, forms, etc.).
Future prospects
According to World Bank analysts, the overall increase in trade turnover between China and the EU will increase by about 30% by 2030, and the volume of cargo transported along this route will increase 3 times. However, if measures to improve the operation of the Trans-Caspian Corridor are not implemented, then demand for transportation will be 35% lower than the projected increase.
At the same time, as World Bank experts predict, even with the successful implementation of all infrastructure projects, this route will play a more important role in regional rather than transcontinental trade: by 2030, trade between Europe and China will account for less than 40% of the volume of transported cargo.
In any case, in the context of deteriorating relations between Russia and Europe, the EU is extremely interested in expanding the capabilities of the Trans-Caspian corridor, so it will invest material, technical and political resources in this project.
At the beginning of 2023, Russia announced the construction of two new transport corridors from China towards Europe, bypassing Kazakhstan. The first is through Kyrgyzstan, Uzbekistan to Turkmenistan, and then through the Caspian Sea to Astrakhan (South transport corridor). The second is the continuation of the new Moscow-Kazan highway to Novosibirsk, and then through the Altai Republic or Mongolia to China. Experts also add to this list the North-South route through Azerbaijan (restoration of railway infrastructure. Russian investments are estimated at $1.3 billion). In recent months these projects have generated a wave of discussions about the allegedly growing tension in Russian-Kazakh relations.
South transport corridor – A memorandum on its formation and development of the southern transport corridor was signed in November 2023 by participants in the first SCO transport forum in Tashkent (Uzbekistan).
The first route is more the interest of Kyrgyzstan. Bishkek intends to create an opportunity to enter the Russian market, bypassing the territory of Kazakhstan. Among the reasons cited is the need to bypass queues at the Kazakh-Kyrgyz border. But it is obvious that it is not the point. Kyrgyz businesses are the transit of Chinese goods to the territory of the EAEU. And not so long ago, Kazakhstan detained a shipment of drones to Russia. Theoretically, there is no customs border between the EAEU countries and transport with drones should not have been stopped. However, the Kazakh side is in control of the situation. Kazakhstan is the only country in the region that has placed exports and re-exports to and from Russia under the control of American structures. It seems that in Kazakhstan the fear of secondary sanctions from the USA significantly outweighs its own interests, primarily economic ones. Kazakhstan’s position raises many questions about its fulfillment of its obligations within the EAEU and the CIS free trade zone.
The project of creating a route through Uzbekistan, Turkmenistan and further by sea has little economic feasibility, since goods will leave the EAEU zone and then cross the border again, which will obviously lead to higher prices for supplies. There is an opinion that the talks about the Southern transport corridor is aimed to put pressure on Kazakhstan to remove restrictions on the border for transit cargo. Real steps to implement this route will challenge Kazakhstan’s participation in the North-South corridor project. It connects Russia and India and passes through Azerbaijan, Iran, Kazakhstan, and Turkmenistan. Many experts note that the removal of restrictions on the Kazakh-Kyrgyz border and the Russian-Kazakh border on the part of Kazakhstan can at least slow down the implementation of this project.
In the transport corridors under consideration, problems on the border of Kyrgyzstan and Tajikistan fade into the background since interaction goes through Uzbekistan. On the other hand, we witnessed some major changes on their 972 km long common border. The work of the intergovernmental commission has continued since last year, and to date the parties have agreed on approximately 889 km of the state border out of 972 km. Even if the corridor is not supposed to lead across their border, it helps stability in the region and, theoretically, this could create an alternative to existing corridors or those under construction.
The implementation of these projects will be significantly influenced by Kazakhstan’s activity in attempts to comply with sanctions and the development of routes bypassing Russia. Now Russia is not very serious about Kazakhstan’s attempts to develop the Kazakhstan-Azerbaijan route, since its capacity is limited.
The transport industry of Kazakhstan provides about 9% of GDP, which is quite a large amount. According to the Ministry of Industry and Infrastructure Development of the Republic of Kazakhstan, 13 international transport corridors pass through the country. Among them, it is worth highlighting the Trans-Asian Railway (TAR), TRACECA and North-South, all of which in one way or another connect Asia with Europe.
As we know, there have been or are attempts to bypass Kazakhstan due to its control of border crossings. However, since Kazakhstan’s dependence on China is high, the likelihood of a deterioration in relations due to the construction of new corridors is low. Kazakhstan will remain a significant transit partner for China.
Generally, it is unlikely that the development of alternative transport projects will cause any serious political tension in the region. In bilateral relations between Russia and Kazakhstan or between Kazakhstan and other Central Asian countries, transport transit issues are significant but not the most important ones. In the context of geopolitical changes, when regionalization processes became more important than globalization, relations with neighboring countries will become more and more important.
Finally, we can add that a major change for Kazakhstan will be the successful construction of the railway China – Kyrgyzstan – Uzbekistan. Kazakhstan could probably suffer significant losses in the event of the combined implementation of projects on the southern transport corridor and the China-Kyrgyzstan-Uzbekistan railway. Until recently, these were hypothetical planes, but in the last days we come to know that the construction of the railway can begin as early as the end of 2024.
Despite statements by several Russian politicians that sanctions imposed on Russia by Western countries largely stimulate the development of the national economy, restrictive measures have led to serious problems for many sectors. In the article, you will learn how a year and a half after the introduction of new sanctions, Russian businesses are seeking a way out of the crisis.
From Crisis to Adaptation
According to a survey of employees conducted by the Institute of National Economic Forecasts of the Russian Academy of Sciences in April to May 2022, sanctions affected nearly 60% of the surveyed companies. According to employees in the surveyed entities, sanctions particularly led to difficulties in obtaining imported raw materials and components (67.40% of responses); to price increases within the country (62.00%); to an increase in general economic uncertainty (44.20%); to higher import prices (40.30%), and to a decrease in effective demand in Russia (38.80%).
Companies responded to the challenges by seeking alternatives to departing suppliers within Russia (69.70% of responses), reducing investment costs (36.90%), exploring new markets (31%), and introducing new products (21.30%).
The same team of authors conducted a survey a year later – in spring 2023, which indicates that companies have generally adapted to the new reality: 31.5% of surveyed companies believed that they were not affected by anti-Russian sanctions, compared to 19.2% in April to May of the previous year.
Furthermore, it is worth noting that the percentage of respondents who stated that they only experience negative consequences of sanctions decreased from 56.9% at the end of 2022 to 46.5% in spring 2023, while the proportion of those who believe that sanctions had a positive impact increased from 16.2% to 18.9%.
“In spring 2023, Russian companies increasingly preferred active adaptation methods – searching for new suppliers and markets, modernizing production, etc., while reducing the scope of using passive adaptation methods based on reducing various types of costs,” summarizes one author from the study of survey results.
According to information from an analytical report prepared for the Central Bank of Russia in 2023, manufacturers of industrial products for export remain sensitive to sanctions. The problem lies not so much in the formal and informal restrictions imposed on Russian exports, but in the consequences of reduced imports due to sanctions in conditions of higher import dependence of exporters.
However, the level of sensitivity varies depending on the industry, so after reviewing the general situation of the Russian industry, you can proceed to analyze the situation in specific areas.
Automotive Industry
The Russian automotive industry and car enthusiasts were among the first to feel the effects of economic sanctions.
Recall that foreign companies such as Mercedes-Benz, Ford, Nissan, Toyota, Renault, Mazda, and many others left the Russian market – partly out of solidarity with Ukraine, and partly due to logistical difficulties with component deliveries. This affected factories that assembled these cars in Russia. At the same time, it became almost impossible to import European cars directly from the Old World: as part of the eleventh package of sanctions, it was prohibited to export any cars with an engine capacity greater than 1.9 liters to Russia.
All this led to a triple decrease in car production in 2022 compared to the same period in 2021.
In 2023, the situation began to improve slightly: new cars began to be assembled in factories abandoned by foreign companies. For example, production of Moskvich cars began at the former Renault plant in the capital, and at the Elabuga plant, where Ford Transit was previously produced, licensed assembly of Sollers brand vans began, as well as in the Lipetsk region.
In addition, contacts were established with new foreign partners: in 2023, the import of passenger cars to Russia almost tripled compared to the previous year – in the first 10 months of 2023, 889,400 cars were imported. China is the main supplier of new cars to Russia in 2023 – 80% of them. Cars are also imported through Kazakhstan, Kyrgyzstan, and to a lesser extent through Armenia and the UAE.
The most popular brands of newly imported cars are Chery (23%), Changan (10%), Omoda (9%), Geely (8%), and Exeed (7%). Omoda and Exeed are sub-brands of Chery, which means that this automaker as a whole represents almost 40% of imports.
The changed foreign policy situation affected not only the countries from which cars were purchased but also their age: Russians began to massively switch to imported used cars – in the first 10 months of 2023, 4.84 million used passenger cars were sold in Russia, which is 23% more than in the previous reporting period. The most popular brands are Toyota with a share of 27.4%. This is followed by Honda (16%), Kia (7%), BMW (6.5%), Nissan (6.3%), and Hyundai (5%).
However, servicing used cars is not so easy – there is still a shortage of spare parts for many cars, especially premium and rare brands, which, according to experts, will last at least until the end of the year. In July 2023, problems with deliveries of several items were reported – electronic components, body parts, interior parts, engines, and transmissions for Hyundai, Audi, BMW, Jaguar, Lexus, and Cadillac – had to wait six months.
The shortage of spare parts leads to their price increase. According to car experts, in the summer of 2023, there was a significant increase in prices for:
– body parts for foreign cars;
– engine control units;
– spark plugs;
– control units for Volkswagen power units;
– Brake pads and discs (especially for Japanese cars);
– air flow sensors.
Conclusions
The Russian automotive industry has faced significant challenges due to economic sanctions and the withdrawal of foreign automakers from the market. Despite initial setbacks, there are signs of adaptation and resilience within the industry.
- Shifts in Production: The departure of foreign companies prompted domestic factories to begin assembling new car models, such as Moskvich, and to explore licensing agreements for the assembly of other brands, like Sollers vans.
- Increased Imports: Russia has seen a surge in imports of passenger cars, primarily from China. This influx of new vehicles has diversified the market, albeit with a heavy reliance on a single source.
- Rise in Used Car Sales: With limited access to new European cars, Russian consumers have turned to imported used vehicles. This shift has led to increased sales in the used car market, particularly for brands like Toyota, Honda, and Kia.
- Challenges in Spare Parts: While the influx of used cars has boosted sales, servicing these vehicles has become more challenging due to shortages of spare parts. This has led to price increases and longer wait times for repairs, particularly for premium and rare brands.
Overall, while the Russian automotive industry continues to face obstacles, there are signs of adaptation and resilience as companies seek new partnerships and explore alternative solutions to mitigate the impact of sanctions and supply chain disruptions.
There have been several attempts to find a transport corridor that would bypass a certain country. The reasons for bypassing a country in the transportation of goods can vary, from political and security concerns to high fees. In this article we take a look on a route bypassing Kazakhstan – a major player in transport in Central Asia.
The idea of building the railway between China – Kyrgyzstan – Uzbekistan appeared in 1996, when China announced the start of construction of the South Xinjiang railway (Korla-Kashgar section). A year later, participants signed in Tashkent (Uzbekistan) and Bishkek (Kyrgyzstan) a memorandum of cooperation on the construction of the Kashgar-Osh-Andijan railway and the protocol of the first meeting of the joint working commission.
In 2002, the Chinese government allocated a technical grant (20 million yuan) to Kyrgyzstan to study the future highway, after which both sides chose the northern route, although China benefited from the southern option.
In June 2020 opening of railway trade route between China and Uzbekistan took place. The section passing through Kyrgyzstan is unfinished.
Issues causing disagreement among countries include route determination, railway track selection, financing sources, national security, environmental impact, geopolitical considerations, and more. For instance, China and Uzbekistan may prioritise a shorter and more economical transit route to Europe and the Middle East. On the other hand, Kyrgyzstan might advocate for a longer route that fosters connectivity between the northern and southern regions of the country.
In Kyrgyzstan there is a problem of different railway gauge widths (remained from Soviet times), which significantly complicates the project – it is necessary to build a station where wagons will be moved from track to track.
China’s interest in the route through Kyrgyzstan also lies in the presence of a large number of gold deposits in the country. More than ten years ago, the Kyrgyz government offered to pay China for the construction of the railway with gold mining rights. The status of this proposal is currently unclear.
As of 2023, according to the Ministry of Investment, Industry and Trade of Uzbekistan, the parties have previously agreed on a northern 450-kilometer route passing through Kashgar, Torugart, Arpa, Makmal and Jalalabad. The proposed route will pass through rugged mountainous terrain, but if successfully built, it is expected to cut delivery times to Europe by one week or more.
Companies responsible for the implementation of the project are State Enterprise “NC” Kyrgyz Temir Zholu” and JSC “Uzbekistan Temir Yollari”.
The first option of the road after the feasibility study cost $1.5 billion, during the discussion by 2020 the amount increased to $4.5 billion (up $6,5 billion according to different sources). As for the beginning of 2024 the final costs is unknown, but each country should finance at least 30% of its cost.
Kyrgyzstan is not likely to finance the construction of the project on its own. It is not yet clear what could become a source of funding. the growing level of authoritarianism in the country reduces the possibility of receiving investment from Europe. On the other hand, attempts to pull Kyrgyzstan away from Russia from the West may also include investments in transport infrastructure.
In Kyrgyzstan, a limit has been established according to which one creditor can account for no more than 45% of the total external debt. However, the country’s debt to China currently amounts to 39% of its total external debt, which is close to this limit.
According to Beijing, in 2022, Chinese exports to Kyrgyzstan amounted to $15.42 billion, while only $4.07 billion worth of goods were registered in Kyrgyzstan, which indirectly indicates that most of the trade between China and Kyrgyzstan consists of contraband goods.
The main beneficiary is China. The railway will allow increasing the volume of transportation, the dependence of which on weather conditions is minimal. The benefit to Uzbekistan and Kyrgyzstan is not obvious. On the one hand, this should stimulate the development of infrastructure and industrial production along the railway. On the other hand, the frequent changes of politicians and the high level of corruption in the countries will obviously not allow the full potential of the project to be realised.
The implementation of this route is unlikely to have an impact on transit on the territory of Kazakhstan, since the main goal does not bypass Kazakhstan, but the growth of Chinese imports in general. Any transports corridors along the Central Asian route are considered by China as an additional opportunity to supply its goods to Europe.