In a strategic move set to redefine the Eurasian logistics landscape, two major international transport corridors are emerging as key conduits between the European Union and China. The Trans-Caspian International Transport Route (TITR), also known as the Middle Corridor, traverses Kazakhstan, while the Southern Corridor cuts through Kyrgyzstan, Tajikistan, Uzbekistan, and Turkmenistan. Each route boasts distinct technical and investment profiles, with varying potentials for growth and development. Traditionally seen as rivals in the competitive sphere of international trade, these corridors are now the focus of a comprehensive analysis. This paper delves into the dynamics of corridor management, examining factors such as public-institutional support, the maturity of development programmes, and the legal frameworks governing these routes. The aim is to ascertain the true extent of competition and potential synergy between these critical Eurasian trade arteries.
Grasping the nuances of a transport corridor’s development demands a deep understanding of its nature as a distinct, integrated system and its pivotal role in global trade. These corridors are not merely pathways but sophisticated networks, intricately weaving together elements such as transport facilities, infrastructure, and key logistical nodes. Each segment, be it a bustling port, a strategic terminal, or an interlinking hub, serves as a critical cog in this vast machinery. Collectively, these components form a robust transport system, functioning seamlessly to facilitate commerce and connectivity. Recognizing the synergy between these interconnected elements is essential for comprehending how they contribute to the efficiency and effectiveness of international trade.
In the realm of global logistics, transport corridors stand out as distinct entities within the broader transport system. These corridors, defined by the fixed distances between facilities and the relentless flow of traffic, necessitate a careful balance — a fusion of infrastructure into a seamless, organized whole. The efficacy of a transport corridor is measured by its level of organization and establishment, gauging its success and appeal in the competitive arena of international trade.
Managing these corridors is a task of considerable complexity, layered with multiple dimensions. It involves a strategic blend of management tactics designed to optimize corridor functionality and purpose fulfillment. Central to this endeavor is the need for intricate, cross-national regulation and management, integrating both public and private sector involvement. This collaborative approach is crucial in steering these crucial trade pathways towards operational excellence and strategic relevance.
Role of institutional structures that facilitate corridor development
The organizational architecture of transport corridors often revolves around a key entity, typically a “Secretariat,” tasked with a spectrum of critical functions. This body plays a pivotal role in charting the course for corridor improvements, securing financial backing for infrastructure development and upkeep, strategizing growth, and championing legal and regulatory reforms. These responsibilities are integral to the broader concept of corridor management.
In examining the Middle and Southern Corridors, the crux of their development lies in identifying and articulating a central objective, a task falling under the purview of their respective institutional frameworks. For instance, since 2013, the Middle Corridor has been focused on amplifying cargo traffic along its route, a clear and targeted goal. In contrast, the Southern Corridor faces a more complex scenario. The absence of a dedicated regulatory institution, coupled with its recent consolidation into a unified system, poses a challenge in defining a singular, overarching purpose for this corridor, highlighting the nuances and varying stages of development within these critical trade routes.
In analyzing the evolution of the Middle Corridor as a distinct entity, it’s imperative to acknowledge its origins in the Transport Corridor Europe-Caucasus-Asia (TRACECA) program. This initiative, under the aegis of the European Union and the European Commission, was pivotal in fostering economic, trade, and transport connections across Europe, along with the regions of the Black Sea, the Caucasus, the Caspian Sea, and Asia. Until 2015, one of the primary goals of this Agreement was precisely this development of interregional links.
However, as the dynamics within the Caspian region shifted, a sense of discontent emerged among the countries in the area. This was largely due to the growing perception that the discourse around the development of the TRACECA corridor network was predominantly driven by external, non-regional actors. Moreover, there was a realization that the focus on the trans-Caspian direction was not as central as initially anticipated. Considering the initiative’s original intent to serve as a bridge between Europe, the Caucasus, and Asia, its foundational motive was perceived to be more political than practical. This recognition led to the strategic decision to delineate the Middle Corridor as an autonomous system, reflecting a recalibration of regional priorities and perspectives.
The TRACECA Initiative, in its ongoing evolution, continues to broaden its scope beyond the Middle Corridor, with the inclusion of routes like the Southern Corridor in its network. This expansion is encapsulated in the Strategy 2026, which outlines a commitment to augmenting the TRACECA corridor’s role in international trade. This strategy notably aims to position TRACECA as a viable alternative to other existing trade corridors, extending its influence beyond the confines of the TRACECA region.
When juxtaposing the strategic objectives of the Middle and Southern Corridors, a distinctive emphasis emerges. The Middle Corridor is particularly focused on bolstering freight traffic, suggesting a targeted approach to enhance its logistical capabilities. Conversely, the broader TRACECA objectives, which encompass both the Southern and Middle Corridors, seem to embody a more competitive stance, aimed at asserting TRACECA’s prominence in the global trade arena.
The importance of TRACECA’s expansion and strategic focus becomes even more pronounced in the context of recent global events, such as the war in Ukraine and the consequent marginalization of Russia from certain trade dynamics. These developments have led to a heightened focus within TRACECA on Central Asian routes. This shift in attention is further evidenced by TRACECA’s schedule of interactions with member countries, particularly in the last quarter of 2023, reflecting a strategic recalibration towards Central Asian connectivity and trade facilitation.
Although the Southern Corridor does not have and is not supported by a separately dedicated regional governance system in the form of an institution, as in the case of the Middle Corridor, it is nevertheless part of the TRACECA institution, which has recently built up the work of the southern Central Asian countries.
In addition to the above, China’s regionally leading Belt and Road Initiative (BRI), which has also been in existence since 2013, includes a key route identical to the Southern Corridor, just as it does with TRACECA. In BRI documents and programmes, this corridor is listed under the route name China – Central Asia – West Asia Economic Corridor (CCWAEC).
At the same time, both corridors are part of the transport network of the Central Asia Regional Economic Cooperation (CAREC) programme, established shortly after TRACECA and supported by the Asian Development Bank. Transport infrastructure and transport corridors are one of the organisation's niche areas chosen to achieve the goals of accelerated economic growth and poverty reduction.
CAREC railway corridors
Thus, both corridors have the institutional support of two major institutions, but only one of the corridors, namely the Middle Corridor, is backed by a separate regional development support from a local organisation solely of the corridor member countries.
Legal Framework and Participation of Ministries of Corridor States
In the design of transport corridors, the legal framework plays a crucial role. It serves as the foundation, outlining the responsibilities and agreements of all parties involved, both within and outside of an institution. This framework is key in ensuring that different transport systems and procedures are harmonized and recognized mutually.
When it comes to international corridors, the role of the legal framework becomes even more important. It requires national governments to make sure that all relevant government agencies, whether at the national or regional level, as well as the private sector, follow the corridor's vision and objectives as set out in the legal framework.
The above institutions supporting corridor development operate on the following legal basis:
- Membership and Working Group Regulations (Middle Corridor)
- Agreements and Memoranda (TRACECA)
As for BRI, it is not possible to find publicly available legal documents. There is a legal framework in place between the CAREC program and participating countries for corridors in the form of targeted financial Agreements (e.g., loan agreement, grant agreement).
The effective implementation of legal obligations in the transport sector largely hinges on the capabilities of relevant state institutions in each country. A specialized ministry dedicated to transport is often indicative of a country's commitment to the qualitative and necessary development of this sector. The absence of such a dedicated body typically suggests a lower potential for sectoral advancement.
For instance, since gaining independence, Kyrgyzstan and Tajikistan have established Ministries of Transport and Communications. Uzbekistan followed suit with its Ministry of Transport established in 2019, while Kazakhstan only formed a similar ministry in 2023. Turkmenistan, however, has yet to create a separate, higher-level entity for overseeing its transport sector.
Kazakhstan's recent establishment of a transport ministry indicates a strategic shift, signalling an intent to more actively develop this sector in response to growing demand and interest in the country. For Turkmenistan, given its relatively closed-off nature, the formation of a similar governmental body might be on the horizon, reflecting a gradual adaptation to evolving regional transport needs and dynamics.
Programme support for transport corridor development
The establishment of a legal framework for a transport corridor naturally leads to the need for a development program or strategy to ensure its ongoing operation. In 2021, there was a decision to equip the Middle Corridor with a development strategy extending to 2025. However, this document was never officially presented. Despite this setback, the corridor found a place within the "Concept of Development of Transport and Logistics Potential of the Republic of Kazakhstan until 2030." While this inclusion is significant, it represents only a partial program support for the corridor, limited to the national context of Kazakhstan, one of the participating countries. This situation highlights the corridor's potential for more comprehensive, multi-national strategy development and support.
On the flip side, the Southern Corridor finds its place within the framework of the TRACECA Strategy for 2026. The advantages of this strategic approach for the corridor have been underscored by Turkmenistan's formal endorsement of the TRACECA Agreement in 2023 (it's noteworthy that TRACECA has been present in the region since 1993). This move potentially signifies the heightened commitment of the country's government towards advancing the development of this corridor on its territory.
Conversely, the actual strategic program documents related to the Belt and Road Initiative (BRI), where the corridor is also a pivotal component, remain inaccessible to the public. The CAREC program, which influences both corridors, operates under the guidance of the Transport Strategy for 2030. Consequently, the Middle Corridor, as a standalone entity, faces a significant disadvantage in the absence of a guiding document.
Navigating Investment Challenges Amidst Risk Factors
Following the establishment of institutional support and programmatic frameworks, the pivotal next step in corridor development revolves around securing the necessary investments. While Western nations have expressed growing interest in fostering a Central Asian transport platform, it appears that the lion's share of financial investments in corridor transport infrastructure will likely stem from Chinese sources. Several key factors outlined below shed light on why major Western institutional investors approach this region, situated at a considerable distance from their home bases, with a degree of caution.
The Middle Corridor has historically presented challenges for entry and operation, attributable to a range of factors, including:
- Prolonged border crossing delays between Kyrgyzstan and Kazakhstan.
- Suboptimal utilization of Caspian Sea ports, resulting in underdeveloped capacity.
- Imminent ecological threats due to shoaling in the region.
- Ongoing instability along the borders of Armenia and Azerbaijan, as well as between Georgia and Russia.
- Persistent hostilities in the Black Sea area.
This list is by no means exhaustive, as highlighted in a recent study by the World Bank. These complexities underscore why Western institutional investors may exercise caution when considering investment opportunities in this distant and intricate landscape.
The most significant risk factor lies in the Northern Corridor, which has historically outshone Central Asian routes in terms of speed, quality, and overall value proposition. Prior to the conflict in Ukraine, the Middle Corridor had scarcely posed any competition to its northern counterpart. However, this paradigm shifted drastically as the Ukraine conflict unfolded, catapulting the Northern Corridor into modernity and witnessing an unprecedented surge in demand for the Middle Corridor.
As we assess the challenges surrounding the development of Central Asian corridors, particularly in the context of securing essential investments, a key concern emerges. It appears increasingly unlikely that the Middle Corridor can effectively compete with the Russian Northern route in critical logistical aspects during the current period and quite possibly over the next few years. This holds especially true in scenarios involving trade balance recovery and the return of peace, where trade flows are bound to realign themselves with the Northern route, driven by its more favorable business conditions.
Investing in the Southern Corridor comes with a distinct set of challenges, chief among them being the instability along the Afghan border, particularly with Uzbekistan. Additionally, concerns loom over the potential emergence of a water conflict between Central Asian nations and Afghanistan, as Afghanistan is a significant source of water resources for the region. This precarious situation could potentially set off a chain reaction, starting with tensions at the Afghan-Uzbek border and escalating into a broader internal conflict among Central Asian nations, given their interconnectedness and mutual dependence on water resources.
Furthermore, the Southern Corridor's proximity to Iran adds another layer of complexity. The strained relations between the United States and Iran since 2019 significantly influence the assessment of investment prioritization for Western countries. These geopolitical factors underscore the multifaceted nature of investment risks associated with the Southern Corridor.
As previously mentioned, the majority of investments in Central Asian infrastructure originate from China. Nevertheless, there are reservations expressed by experts regarding the acceptance of Chinese investments. The concern revolves around the Belt and Road Initiative's (BRI) objective of connecting diverse regions through infrastructure development, often facilitated by low-interest loans extended by China to participating nations.
This Chinese strategy has raised apprehensions, especially in light of the 2017 example involving Sri Lanka's default on an infrastructure loan. Sri Lanka was subsequently compelled to grant Chinese state-owned companies a 99-year lease on the Hambantota port. Pakistan also handed over the Gwadar port on a 40-year lease under similar circumstances. These instances have led to suspicions that China might be aiming to acquire strategic assets in lieu of loan repayments. By securing such assets, China can gain control over key regional hubs along its trade routes. In this context, avoiding defaults and financial mismanagement by host governments becomes paramount for safeguarding their interests.
In contrast to the concerns and negative examples, there are instances of what can be termed as "positive feedback" arising from infrastructure investments in countries of interest to China. Notably, the African continent has emerged as a preferred sector for Chinese investment due to China's keen interest in bolstering the infrastructure of African nations to serve as vital trading platforms.
Reflecting on past experiences, particularly the somewhat unfavorable outcome of the TAZARA railway project constructed by China in 1970 with an interest-free loan, valuable lessons were learned. The TAZARA railway project encountered numerous challenges, including issues related to poor management, a shortage of skilled personnel, subpar technical conditions, and the resultant damage to China's reputation in Africa.
Subsequent to this less-than-ideal venture, China adjusted its approach to projects within the Belt and Road Initiative (BRI) framework in Africa. Under the revised strategy, upon completion of railways and other infrastructure, Chinese companies assumed responsibility for the operation and maintenance, concurrently providing training to local management and ordinary railway staff. This strategic shift reflects a commitment to not only constructing infrastructure but also ensuring its effective long-term operation and development in partnership with local stakeholders.
In addition to the Belt and Road Initiative (BRI), the Information Office of the Beijing State Council issued a document titled "Building BRI: Fundamental Principles for Forging a Community of Shared Destiny" in October of this year. Within this document, one can discern a narrative emphasizing constructive intentions behind the project, woven into the core principles governing BRI implementation.
The document underscores that the BRI initiative is grounded in the principle of "mutual purpose, collaborative construction, and shared benefits." It actively promotes the notion of mutually beneficial cooperation and a genuine commitment to equitable outcomes. The document steadfastly maintains that all participating countries are equal partners in this endeavor. These sentiments are echoed throughout the document, illuminating the concept, objectives, and vision of the project from the perspective of the Chinese government.
Consequently, the success of each project, particularly within the context of the Belt and Road Initiative, should be evaluated on a case-by-case basis, taking into account the unique agreements between countries, their respective capabilities, the specific financing options offered by the Chinese side (which includes several financing models), and other pertinent details.
To Compete or Not to Compete?
Within the same region, the coexistence of competing Middle and Southern Corridor agendas can be rationalized through standard economic reasoning. A country that facilitates the uninterrupted and prosperous flow of transport trade through well-established corridors stands to gain various economic advantages. These include profits from transit fees, tariff utilization, increased trade volume and potential, enhanced business and investment conditions, and other financially rewarding outcomes. In this context, states acting as corridor providers may indeed vie for this valuable resource, thereby fostering mutual corridor development through competitive forces.
In both the Middle and Southern Corridors, Central Asian nations are actively driving the emergence of various legal and trade initiatives in the region. These initiatives reflect a shared mutual interest among these countries. Notable examples include the Agreement on Enhancing Land Transport Interconnectivity in Central Asia, the Agreement on Establishing an Industrial Trade and Logistics Complex on the Kazakhstan-Kyrgyzstan border, the construction of a new railway connecting Kazakhstan and Uzbekistan, and the Memorandum on Transport Interconnectivity between the Ministry of Transport of Kazakhstan and the Agency for Transport and Communications under the Cabinet of Ministers of Turkmenistan.
These endeavors are geared towards facilitating the flow of trade, which is intricately linked to corridor operations. In the event of a potential significant shift, such as the exclusive use of one corridor (e.g., the Southern Corridor), a country not part of the selected route (e.g., Kazakhstan) would still have flexible and convenient access to a neighboring country's corridor through streamlined regional procedures. This strategic approach ensures adaptability and accessibility in the face of evolving trade dynamics.
The distinctive technical contexts of the Middle Corridor and the Southern Corridor give rise to systemic disparities in their capacities. A recent study conducted by the World Bank highlights these disparities. It reveals that the Middle Corridor, while necessitating capital investments, predominantly operates on existing brownfield infrastructure—infrastructure with a history of previous development. In contrast, the Southern Corridor demands a substantial portion of entirely new core infrastructure (greenfield), which entails a considerably more intricate financing system and financial framework. This, in turn, exposes the Southern Corridor to heightened risks, including macro-fiscal vulnerabilities.
In a technical sense, the two corridors face formidable challenges in competing with each other. This challenge is further compounded by the comparatively lower level of programmatic development in the Middle Corridor and the absence of a dedicated institution for the Southern Corridor. These factors collectively underscore the complexities that shape the competitive landscape between the two corridors.
In light of the established regional partnership among Central Asian nations and the current technical state of the corridors, the optimal strategy entails the simultaneous development of both corridors while ensuring their harmonization. This approach fosters a diversified marketplace for external consumers, characterized by robust competition, and enhances the quantity and quality of opportunities within the regional framework. By aligning the Northern Corridor with these objectives, it transforms into a source of healthy competition rather than a potential risk. It's noteworthy that as early as 2000, the Russian Foreign Ministry acknowledged the transport corridor's significance to Russia's trade interests. Therefore, despite historical challenges, the Central Asian corridors now align with Russia's trade interests.
In pursuit of sustainable progress in Central Asia's internal development, it is imperative to consider several strategic measures, grounded in an assessment of the corridors' governance paradigm. These include:
- Establishment of a Dedicated Southern Corridor Institute: The creation of a specialized institution dedicated to the Southern Corridor is paramount. Such an entity would focus on the unique challenges and opportunities presented by this route, fostering targeted expertise and facilitating its sustainable growth.
- Formulation of a Comprehensive Development Strategy and Diversification of Partner Networks for Both Corridors: To ensure the long-term viability of Central Asia's corridors, a robust Development Strategy should be crafted. This strategy must also encompass diversification efforts aimed at broadening the partner network for both corridors, thereby enhancing their resilience.
- Harmonization of National and Institutional Strategies: A critical step involves aligning the national strategies of participating countries with the objectives of the corridor institutions. Drawing inspiration from Kazakhstan's example, where the Middle Corridor is integrated into the broader Concept of Development for Transport and Logistics Potential, similar harmonization efforts should be extended to all corridors.
- Promotion of Strategy Consistency among Corridor Institutions: Emulating successful models like the Belt and Road Initiative (BRI) and the Central Asia Regional Economic Cooperation (CAREC), the region's corridor institutions should work collaboratively. Building on the 2017 agreement between these two organizations, Central Asia's corridor institutions should forge common strategies, particularly considering their shared transport networks.
- Strengthening Public-Private and Institutional Partnerships: The collaboration between the public and private sectors, as well as between various institutions, should be deepened. Robust partnerships can fuel innovation, investment, and sustainable development along the corridors.
- Development of Enhanced Intergovernmental Dialogue Mechanisms: Establishing more effective intergovernmental dialogue mechanisms is essential. These platforms will facilitate coordinated decision-making, policy alignment, and conflict resolution, promoting the corridors' smooth operation.
- Individual Trade Status Clarification: Each participating country should undertake internal assessments to clarify its trade status as a logistics hub or transit nation. This introspection will inform targeted policies and strategies conducive to the corridors' success.
In adopting these measures, Central Asia can pave the way for a more sustainable and prosperous future, marked by well-governed corridors that are vital to the region's continued development.
Given that the substantial investment risks associated with corridor development primarily revolve around environmental and political factors, rather than infrastructure-related concerns within Central Asia and its border regions, it is imperative to adopt a prudent and strategic approach. This entails fostering increased engagement and commitment from each Central Asian country in the development of both transport corridors.
Under various less favorable scenarios, including the potential shallowing of the Caspian Sea rendering Russian territory inaccessible for trade or the resurgence of military conflicts in the Caucasus, Kazakhstan's reliance on neighboring regional states for access to functional corridors becomes evident. Similarly, in the event of contingencies such as military conflicts involving Afghanistan or the inaccessibility of Iranian territory for trade, the majority of countries in the region will rely on connectivity to Kazakhstan's efficient corridor network.
This underscores not only the vested interest of Central Asian nations in the parallel development of both corridors and the promotion of healthy competition between them but also the relevance of this approach to extra-regional players, notably China. In a world fraught with uncertainties, the versatility and adaptability of a comprehensive corridor network can serve as a vital lifeline for trade and connectivity, transcending geopolitical challenges and environmental changes alike.
Main photo: Caspian Report.