BOFIT Viikkokatsaus / BOFIT Weekly 2019/32

A recent report from the OECD’s International Transport Forum (ITF) examines the potential for countries in Central Asia to become a major hub on the Eurasian continent. A World Bank report takes a different tack, considering the overall economic argument for China’s Belt and Road Initiative. Both reports conclude that better land connections and logistics, while important, will not be transformative.

The geographic isolation of Central Asia (Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan and Turkmenistan) is hard to overcome. Improved land connections would not necessarily transform economies based on commodity exports, but would widen the potential customer base for these countries. Even so, other factors such as unpredictable customs practices are likely to ward off international trade.

A recent transition report from the EBRD finds that if all planned transport corridors are built by 2040, it would increase real incomes in Uzbekistan by 6 % and in Kazakhstan by 4.5 %. These projects have a long journey from planning to implementation. The World Bank’s assessment finds a direct impact on Central Asian real incomes of about 1 % after roads are built under China’s Belt and Road plan. The biggest gains flow to the 300-km long Fergana Valley, which spans Uzbekistan, Kyrgyzstan and Tajikistan. The fewest benefits accrue to Turkmenistan. Streamlining of documentation and border inspection practices would deliver more benefits than Belt-and-Road connections per se.

Even with the challenges, Central Asian nations have come up with functional solutions. Rail freight transport between China and Europe moving through Kazakhstan usually keeps to schedule without unreasonable delays. Depending on destination, rail shipments from China to Europe only take about 15 days (transport by ship takes about 30 days). Despite the large investment, the value of goods freight moving by rail between China and Europe is worth only 2−3 % of the total value of goods flow. The sea and air freight dominate flows when measured in value of transported goods.