Evaluating the Role of the Middle Corridor on Central Asian Economic Development
Marina Gruzer | 24 June 2024
Summary
The Middle Corridor trade route, connecting China and Europe via Central Asia has experienced a surge in freight shipping volume since the start of the 2022 Russo-Ukrainian war. This could provide significant opportunities for Central Asian infrastructure development and domestic industry competitiveness.
Kazakhstan, the largest Central Asian economy, has been the most active in regional infrastructure development projects and China has been a key partner through its Belt and Road Initiative (BRI).
Despite increasing trade volumes, with Kazakhstan’s Middle Corridor trade turnover increasing by 45% in 2022, the long-term challenges of limited port capacity and administrative inconsistencies across the route, pose the risk of underwhelming economic development.
The Middle Corridor, known as the Trans-Caspian International Transport Route (TITR), is a trade corridor connecting China to Europe via the Southern Caucasus and Central Asian regions. Traditionally, its northern counterpart, passing through Russia, has been more popular due to efficient rail infrastructure and fewer customs delays despite being 3,000 kilometres longer. However, the start of the Russo-Ukrainian 2022 war and subsequent anti-Russian sanctions have ushered an increased interest in the Middle Corridor. By September 2023, the cargo transit volume reached 1.9 million tonnes, an 89% increase from September 2022. With the World Bank estimating that the Middle Corridor has the potential to halve travel times between China and Europe and triple freight volumes to 11 million tonnes by 2030, this trade route may provide significant development opportunities for Central Asia.
Raw material exporters, such as Kazakhstan, aim to utilise the enhanced interconnectivity from the Middle Corridor to increase the competitiveness and development of domestic industries. Kazakhstan is the leading Central Asian state in challenging the high transportation inefficiencies and costs. For example, Kazakhstan has been developing regional interconnectivity via the Trans-Kazakhstan railroad, completed in 2014, which cut the route from China to the Caspian Sea by approximately 1,000 kilometres. Following the 2022 Russo-Ukrainian war, in collaboration with Azerbaijan and Georgia, Kazakhstan established the Eurasian Joint Alliance joint venture. This initiative aims to automate operations and increase administrative efficiency at border crossings. Therefore, Kazakhstan has taken on a significant role in leading infrastructure development policies to overcome the capacity inefficiencies of the Middle Corridor, which could provide opportunities for firms looking to diversify trade routes.
Additionally, external partners have been active in developing Central Asian interconnectivity. Since 2013, China’s Belt and Road Initiative (BRI) has facilitated significant developments in Kazakh interconnectivity via road and railway projects alongside a Special Economic Zone (SEZ) and free trade zone. In collaboration with Kazakhstan’s Nurly Zhol economic development policy, China has also been a crucial partner in developing the Khorgos dry port, the world’s largest dry port central to trans-Eurasian trade, at the Kazakh border. Similarly, China’s BRI will be important in developing the China-Kyrgyzstan-Uzbekistan (CKU) railway following the trilateral intergovernmental project agreement made on 6th June 2024. Hence, China's extensive investment in the region’s Middle Corridor may continue to enhance Central Asian economic and infrastructural interconnectivity.
However, challenges are involved in developing the Middle Corridor that needs addressing for firms to fully exploit the TITR interconnectivity. The Middle Corridor remains inefficient, due to a lack of containerisation capacity, insufficient public-private collaboration and limited multilateral projects across the region. For example, delays will persist regardless of Kazakhstan’s modernisation efforts if partners like Azerbaijan do not expand their containerisation and port capacities. Governments remain concentrated on national frameworks and a lack of regional cooperation creates irregular developments. While the CKU promotes multilateral collaboration, there is a wider lack of regional consistency both in terms of project scale and public-private partnership frameworks. Therefore, a lack of regional administrative consistency may limit the development of the Middle Corridor capacity and the real extent of economic growth in Central Asia could be less than expected.
Joseph/Wikimedia, Marina Gruzer
Forecast
Short-term
As the war in Ukraine continues, the growing demand to diversify trade flows via the Middle Corridor will likely increase the freight volumes crossing the region. This gives Central Asian states and firms greater opportunities to take on more prominent roles in global trade and provide access to varied foreign markets.
Medium-term
The new development commitments, such as the CKU railway and Kazakhstan’s infrastructure projects, are likely to improve regional interconnectivity and may act as a significant boost for Central Asian economies. However, this would depend on the success of initiatives, such as the Eurasian Joint Alliance, that aim to streamline regional administrative and regulatory barriers.
Long-term
Funding frameworks for large projects, such as the CKU railway, are still unclear, and the Middle Corridor requires an estimated €18.5 billion (USD 19.9 billion) in infrastructure development to meet the growing freight volume demand, this trade route is unlikely to replace the northern route as the dominant trans-Eurasian route.
