New investment and B2G opportunities should emerge as discussions intensify and infrastructure expansion continues
Long-term investments in port capacities and shipping infrastructure should allow MNCs operating in the region to substantially diversify their logistical and supply-chain capabilities in the long term. Businesses should also monitor developments in establishing a harmonized tariff structure and single checkpoints along the Corridor, as these initiatives are poised to significantly reduce delivery times and costs. MNCs in logistics, transportation, and infrastructure construction should also capitalize on the emerging opportunities in the Caucasus and Central Asia markets given the increased momentum for additional investments in new trade routes. Companies that provide digital solutions for customs and transport documentation may also find new B2G opportunities through assisting involved governments in streamlining operations and enhancing efficiency along the Corridor. MNCs should also keep a close watch on developments related to a peace deal between Armenia and Azerbaijan, as the recent de-escalation of conflict could unlock new trade routes, providing access to new markets like Armenia and potentially enhancing the attractiveness of the Corridor.
Overview
- Since our last update on the Middle Corridor in May 2023, there has been a notable intensification of discussions and high-level meetings regarding the corridor. In June 2023, railway companies from Azerbaijan, Georgia, and Kazakhstan signed an agreement to streamline tariffs and cargo handling by establishing a joint venture. Anticipated outcomes include a reduction in the transit time to 18 days in 2023, followed by a further decrease to 10–15 days in the coming years. Officials from Kazakhstan have verified a reduction in transit time within their territory from 12 to 6 days and have expressed further intentions to reduce transit time to 5 days by the end of 2023.
- Certainly, achieving these ambitious targets necessitates a sustained commitment to substantial investments in infrastructure expansion. The overall estimation from the EBRD indicates that the Middle Corridor demands an investment of US$ 19–21 billion. This will require collaborations not only within the public sector but also between the public and private sectors. Despite reducing investments along the corridor, China remains a key player and maintains collaboration with Kazakhstan, recognizing it as a crucial transport hub in the region. At the recent Belt and Road Initiative Summit in China in October, the two nations signed 30 commercial deals amounting to US$ 16 billion. Four documents between the Kazakh Transport Ministry and Chinese officials also outline plans for enhancing multimodal and container transportation in Kazakhstan, including the construction of the Tacheng-Ayagoz railway, establishing a third railway checkpoint, and developing border terminal facilities, as well as establishing an aviation route to facilitate the growth of freight hubs in Kazakhstan.
- The emphasis on regional interconnectivity, with the Middle Corridor as its centerpiece, also persisted throughout the first ever Central Asia-US and Germany summits held in September and October 2023, confirming growing Western interest that could lead to increased FDI into the region. Germany, in particular, has shown a keen interest in deepening its involvement, as underscored by the visit of the German President to the Aktau Port in June, where he reiterated emphasis on increasing the supply of Kazakh oil through the Corridor.
- Additionally, the APM Terminals Poti in Georgia is preparing to connect global producers with Central Asian markets through a new ocean-rail route launched by Maersk. The route efficiently moves cargo from the Black Sea to Central Asia, functioning as a hub for cargo consolidation and dispatch. There is also growing focus among participating countries on employing digital tools to ease and streamline border processes, along with efforts to harmonize policies related to customs and transport documentation. This has also been actively promoted by major IFIs, highlighting a space where Western technologies and supportive measures could bridge existing gaps and challenges.
Our View
In 2023, despite achieving several key milestones, transit countries must intensify their efforts to enhance the use of the Middle Corridor in the medium term, including increasing investment allocation for additional border infrastructure. While Azerbaijan, Georgia, and Türkiye have successfully collaborated on major regional oil and gas pipeline projects, intra-regional cooperation in Central Asia remains constrained. Numerous factors, including slow bureaucracy, inherent structural issues, such as corruption and weak institutions, and geopolitical challenges, fueled by the interests of major global players, contribute to these persisting challenges.
In light of these issues, we maintain our view that the Middle Corridor is unlikely to eliminate the need for the Northern or Southern Corridor over the medium term. Nevertheless, existing initiatives regarding the Middle Corridor will provide a major addition to the existing and prospective trade transits, and in effect diversify trade routes, while also minimizing the risk of disruptions to trade flows.
We also believe that as the three-decade conflict between Armenia and Azerbaijan is now de-escalating and the momentum is building for a historic peace treaty, new opportunities may open for the Middle Corridor. First, this development substantially reduces the security risks along the route. Second, the establishment of a new Azerbaijan-Armenia-Nakhchivan-Turkiye transport route could unlock a new pathway through Armenia, bringing the landlocked Armenia onto the world stage. However, discussions around unlocking this route remain one of the key sticking points of the ongoing peace negotiations, and the results are yet to be seen.
Finally, a number of governments have initiated a series of discussions on a potential India-Middle East-Europe-Corridor (IMEC) project, introduced at the recent G20 summit held under India’s presidency. This initiative, supported by the US, Gulf states, Israel, and some European countries, aims to reshape the geopolitical landscape in the Middle East by enhancing trade between the East and West. It also implicitly seeks to counter Chinese influence along the Belt and Road Initiative and further isolate Iran, while fostering normalized relations between the Gulf States and Israel. However, we do not anticipate this route to become a significant game changer or to pose substantial competition to the Middle Corridor, especially in the short term. First, this route primarily connects India and the Middle East with the West, rather than China, which remains the largest trade partner of Europe. Second, the full implementation of the project, similar to the Middle Corridor, necessitates substantial investment promises that have yet to materialize. Finally, the ongoing conflict between Israel and Hamas poses a risk, potentially causing delays in the normalization process between Israel and the Gulf states and, consequently, hindering the project’s implementation.
Read our related article on the rise of the Middle Corridor.
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