The volumes of rail transit through Azerbaijani railway section of the corridor peaked at above 400 k tons monthly by mid 2022, after which they flattened and slowly dropped for most of the 2023.
This is partially due to the fact that the sanctions driven logistics frenzy melted away and many returned to doing business as usual. Some of it is attributed to steep increase of Chinese overland exports to Russia, which shares parts of the infrastructure with the Middle Corridor, mostly on Kazakhstani-Chinese border. Cheap sea freight for most of 2023 did not help the Middle Corridor either.
To put it in context, the Middle Corridor is still very small compared to its main alternative, the sea route from China to Europe, constituting less than 1% of its maritime alternative.
Another important fact is that the absolute majority of cargo going through the corridor originates from Central Asia and the Caucasus, or are being imported to the region. Transit through the region with end destination in China or Europe is still negligible. Certain growth in relative figures was very much driven by Chinese subsidies for export, aimed specifically at promoting export from inland China to its north-western borders. This incentives programme is now closed, so the volumes dropped again.
To illustrate, the number of block trains from China to Azerbaijan dropped from nearly 60 in 2022 to a single digit numbers in 2023. Similarly, the number of Chinese containers going through the corridor also dropped.
The trend is being pushed somewhat upwards by increasing transit of oil & gas products from Central Asia through Caucasus to the terminals of Azerbaijan and Georgia. The weight of oil & gas products and their derivative chemicals in the overall transit through Caucasian rail grew from 58% to 63% in the first 11 months of 2023. All this clearly indicates that the diversification of the cargo passing through the Middle Corridor has not happened yet.
The Central Asian and South Caucasian export and import component remains the main driving force of the corridor. The GDP of the region grew by impressive 7% on average during the last 20 years, and the consumer markets of these countries continue to grow, albeit from a low base. These serve as the foundation blocs for the Corridor to continue and grow. But for how much more? Will it become a truly international transit route, connecting China and Europe, just like the Silk Road in the medieval times?
The region remains one of the least integrated regions of the globe both in terms of logistics and trade, with exception of probably Azerbaijan, which implemented an impressive investment program aimed at connecting to outer world by building railways connecting to Turkey via Georgia, port of Alat, numerous airports and extensive export pipeline system.
All the above said indicates a need for reassessment of strategies. The Middle Corridor has long been seen as a brainchild of western media and politicians. It is a statement that Europe can facilitate an alternative solution or plan to China’s Belt and Road. But did Europe really stand behind it with its resources and support, and, most importantly, cargo? Hardly so.
Looking at figures and trends it becomes obvious that the region of Central Asia and South Caucasus should very much rely on itself in this job, and focus on more intraregional trade and better connections to main regional and global trading hubs around them. The Mediterranean ports of Turkey, the Black Sea ports of Georgia, Persian Gulf ports of Iran and Baltic ports should become the centre of efforts of these countries to improve their connectivity and reach out to external markets. It is not only a matter of transit and export for them, but has an overarching meaning of improving the competitiveness of their economies. Connectivity and economic development go hand in hand for these countries, the majority of which have no access to open sea, including Uzbekistan, one of 2 only “doubly landlocked” countries on the globe, the other one being Liechtenstein.
To do it, the countries of the region, and in particular, the countries of the South Caucasus, Azerbaijan and Georgia, should switch from short term, revenue driven transit policies, whereby the backbone of the overland transit system – the railways, continuously raise tariffs which are already substantial and well above regional average and without any substantial change in the quality of services. This policy leads to short term gains in form of more revenues for the rail operators, but long term losses in the form of missed opportunities for wider transit geography and more diverse cargo.
These are by no means the only challenges on the route. Kazakhstan is still to resolve a number of physical bottlenecks on its own territory. But, it is the Caucasian nations who should by default act as the main patrons of the Corridor, simple due to geography.
Azerbaijan and Georgia, who already have a positive record of working together on very complex projects such as international oil & gas pipelines, need to work more closely on transit as well, in particular on coordination of ports and terminals, on more cargo friendly tariffs, and on such under-utilised projects as the Baku-Tbilisi-Kars railways, which was closed unexpectedly and with little explanation for repair a few month ago, affecting negatively the notwithstanding modest transit figures. There is need for alignment of strategies, compromises in order to achieve a win-win gains.
Ramazan Samadov is a professional with over a decade of experience in the banking sector.
