High-quality infrastructure remains critical for economic growth and international trade. Hard and soft infrastructure, effective customs regulation, including digitization of customs procedures are important for boosting trade indicators. Therefore, this commentary aims to analyze recent developments in infrastructure and trade facilitation in the Eurasian region, reveal its problems and provide an overview of important regional infrastructural initiatives.
Many studies indicate infrastructural problems of the Eurasian region. The most important issues for the region are outdated infrastructure and an insufficient level of infrastructural investments. Therefore, countries of the region try to implement both individual programs and regional initiatives for the improvement of their infrastructure. The Central Asia Regional Economic Cooperation Program (CAREC) remains one of the most prominent and important initiatives, which achieved significant results. As of 2017, participants of the CAREC have built, upgraded, or improved almost 10 thousand kilometers (km) of expressways or national highways surpassing the 2020 target of 7.8 thousand km of roads constructed or improved. Moreover, these countries constructed nearly 2 thousand km of new railways and improved more than 3.4 thousand km of railways. Furthermore, they have completed and improved several ports, border-crossing points, and logistics centers. As of September 2020, a volume of investments in transport, trade, and energy projects within the CAREC Program reached $39.2 billion [CAREC, 2021].
Despite these promising results, the key tasks of the CAREC such as improvement in average speed of travel were not achieved. In 2018, this indicator reached 21.3 kilometers per hour (km/h), while the targeted value by 2020 was 30 km/h. However, the average speed varies from 6 km/h to 34 km/h along different corridors. Border clearance times also demonstrate significant differences. In 2018, an average total processing time at the best-performing border crossing points (BCP) amounted to 0.1 hours per vehicle, while at the worst BCPs the outbound and inbound vehicles experienced an average delay of 65 and 25 hours, respectively. In some BCPs, the average total processing time reached 90 hours per vehicle. A variety of factors affected these delays. They include outdated infrastructure and equipment, poor traffic management during peak seasons, inefficient and duplicative control procedures, weak risk management systems and other reasons [CAREC, 2020].
A railroad potential of the CAREC region is about 25 thousand kilometers of main railway corridors. However, the quality of the railroads remains one of the regional disadvantages where improvement measures require a significant amount of investments estimated around $38 billion and only few regional countries can invest at these levels [Asian Development Bank (ADB), 2017].
Besides focusing on hard infrastructure, the regional countries should reconsider the role of soft infrastructure, which substantially contributes to the reduction of trade costs. If previous trade cost reduction mainly came from elimination and lowering tariffs, current efforts should be focused on non-tariff measures. In particular, it is important to improve trade facilitation measures. At the global level, the World Trade Organization’s (WTO) Trade Facilitation Agreement (TFA) remains a key contributor to the process. The TFA entered into force on 22 February 2017 after two-thirds of the WTO membership completed their domestic ratification process. According to estimates, implementation of the agreement may reduce trade costs by an average of 14.3% and boost global trade by up to $1 trillion per year [WTO, 2021].
According to data from the United Nations (2019), the global average implementation of trade facilitation measures stands at 62.7%. The implementation rate of developed economies was the highest and equaled 79.7%, while the Pacific Islands had the lowest 35.5%. Australia and South Korea rank first with the implementation rates of 94.6%. The indicators of Azerbaijan and Russia were the highest in the Eurasian region and reached 81.7%. In Central Asia, the rate of Kazakhstan was the highest and equaled 66.7% slightly exceeding the global average. Uzbekistan’s indicator amounted to 62.4% and was close to the global average. Indicators of Tajikistan and Kyrgyzstan were the lowest and correspondingly equaled 52.7% and 37.6% [United Nations, 2021].
Therefore, improvement of transport infrastructure needs a higher level of regional and multilateral cooperation as well as individual efforts of countries. To boost regional trade and exports, Central Asian countries implement trade facilitation measures individually and with the assistance of developed countries. For instance, the German Federal Ministry for Economic Cooperation and Development (BMZ) supported a project entitled “Trade Facilitation in Central Asia” for 2020-2022. All Central Asian states excluding Turkmenistan participate in the project. To improve the capacity of customs authorities and to reduce the number of physical inspections, the BMZ is implementing a risk management system using pre-arrival information. Harmonization and standardization procedures and closer cooperation between the state agencies will lead to faster and more efficient customs clearance and border crossing. It is expected that development of digital technologies, ensuring transparency, promotion of public-private dialogue on trade facilitation issues will boost regional trade [GIZ, 2021].
Uzbekistan’s new open policy contributed to the regional efforts on trade facilitation. The country started to participate in many events aimed at boosting regional trade. The renewed policy allows other Central Asian states to use Uzbekistan’s infrastructure and access to main markets [The United Nations Economic Commission for Europe, 2021]. Kazakhstan and Kyrgyzstan recently completed the modernization of the Korday – Ak Zhol checkpoint, which was an important trade facilitation project. According to the official information source of the Prime Minister of the Republic of Kazakhstan (2021), after the 2020-2021 reconstruction, the building area of the checkpoint was increased by 3.5 times, the number of traffic lanes – from 2 to 8, the number of passport control booths – from 13 to 34. The countries installed modern inspection complexes. As a result, the throughput of the checkpoint increased from one thousand to 2.5 thousand vehicles and 6 thousand to 25 thousand people per day.
Individual countries made progress on the development of both hard and soft infrastructure. For instance, Uzbekistan plans to construct a new 413 meters bridge over the Amu Darya River. This infrastructural project will reduce the distance for transportation of goods coming from Russia and Kazakhstan by 240 km and the travel time by 6 hours. It is expected that the volume of freight transportation will increase twice and reach 25 million tons a year. The bridge will also reduce the costs of internal trade [UzReport, 2021].
Transport cooperation between the Eurasian countries is also deepening. Recently, the state-owned railway companies of Azerbaijan and Kazakhstan held a meeting in Baku and discussed cargo transportation issues. The parties agreed to digitize the document flow along the route to increase the volume of cargo. Participants noted the importance of adopting a development strategy to use the potential of the International Trans-Caspian transport route [Lmahamad, 2021].
Many studies indicate significant positive effects of trade facilitation for the Eurasian region. According to estimates, trade facilitation may significantly increase regional trade in Central Asia. Improvements in trade facilitation may lead to gains in trade varying from 28% in the case of Azerbaijan to 63% in the case of Tajikistan. Moreover, intraregional trade in Central Asia may increase by 100%. These gains in trade mainly come from infrastructure improvement, followed by logistics and efficiency of customs and other border agencies [Felipe and Kumar, 2012]. According to other findings, improvements in border administration within China’s One Belt – One Road initiative have the greatest impact on exports of corridor countries [Ramasamy and Yeung, 2019].
Therefore, the region needs to develop both hard and soft infrastructure to boost trade indicators. The regional countries need to increase internal investments, develop a regional strategy for transport infrastructure, coordinate country-specific infrastructure programs, cooperate within regional initiatives, and attract investments from international financial institutions. These measures will lead to higher volumes of regional trade and the opening of new promising markets.
References:
ADB (2017). Unlocking the potential of railways. A Railway Strategy for CAREC, 2017-2030. Retrieved from https://www.adb.org/sites/default/files/institutional-document/227176/carec-railway-strategy-2017-2030.pdf. Accessed on 25.05.2021.
CAREC (2020). CAREC Transport Strategy 2030. Retrieved from https://www.carecprogram.org/uploads/CAREC-Transport-Strategy-2030-1.pdf. Accessed on 14.06.2021.
CAREC (2021). CAREC Program. Retrieved from https://www.carecprogram.org/?page_id=31. Accessed on 10.06.2021.
Felipe, Jesus and Utsav Kumar (2012). The Role of Trade Facilitation in Central Asia. A Gravity Model. Eastern European Economics, 50 (4): 5-20.
GIZ (2021). Facilitating cross-border trade in Central Asia. Retrieved from https://www.giz.de/en/worldwide/62251.html. Accessed on 26.05.2021.
Lmahamad, Ayya (2021). Azerbaijan, Kazakhstan mull co-op on rail transport. Retrieved from https://www.azernews.az/business/179369.html. Accessed on 26.05.2021.
Official Information Source of the Prime Minister of the Republic of Kazakhstan (2021). Prime Ministers of Kazakhstan and Kyrgyzstan opened Korday – Ak Zhol modernized checkpoint. Retrieved from https://www.primeminister.kz/en/news/premer-ministry-kazahstana-i-kyrgyzstana-otkryli-modernizirovannyy-punkt-propuska-korday-ak-zhol-23131. Accessed on 15.06.2021.
Ramasamy, Bala and Matthew C. H. Yeung (2019). China’s one belt one road initiative: The impact of trade facilitation versus physical infrastructure on exports. The World Economy, 42 (6): 1673-1694.
UNECE (2021). Trade facilitation efforts continue in Central Asia, strengthened by the reengagement of Uzbekistan. Retrieved from https://unece.org/trade/news/trade-facilitation-efforts-continue-central-asia-strengthened-reengagement-uzbekistan. Accessed on 17.06.2021.
United Nations (2019). Digital and Sustainable Trade Facilitation. Retrieved from https://www.unescap.org/sites/default/d8files/knowledge-products/UNtfsurvey%20global%20report%202019.pdf. Accessed on 17.06.2021.
United Nations (2021). UN Global Survey on Digital and Sustainable Trade Facilitation. Europe (ECE). Retrieved from https://untfsurvey.org/region?id=ECE. Accessed on 17.05.2021.
UzReport (2021). New bridge to help Uzbekistan cut delivery time of goods from Kazakhstan and Russia. Retrieved from https://uzreport.news/economy/new-bridge-to-help-uzbekistan-cut-delivery-time-of-goods-from-kazakhstan-and-russia. Accessed on 28.05.2021.
WTO (2021). Trade facilitation. Retrieved from https://www.wto.org/english/tratop_e/tradfa_e/tradfa_e.htm. Accessed on 14.06.2021.
Note: The views expressed in this blog are the author’s own and do not necessarily reflect the Institute’s editorial policy.