Reviving the Silk Road: Not Just Hardware

October 20, 2015 3:15 PM

The New Silk Road initiative has caught the imagination of politicians across eastern Europe, with the investments it may bring and the prospect of cheap financing. Through it, China offers countries on the land and maritime transport corridors that comprise the Silk Road access to vast infrastructure financing. Started in 2013, the New Silk Road initiative currently covers 40 countries from South Asia to Italy.

One country that has been particularly active drumming up interest in its investment opportunities is Georgia, a country that may not have been on the original Silk Road but that offers an instructive example of how countries might benefit from it. This is understandable: Georgia has fallen on difficult times, squeezed on the one hand by its unfriendly neighbor Russia and on the other hand by the slow-moving process of accession to the European Union. Both Russia and Europe have been traditionally the largest investors in Georgia, and their lack of enthusiasm lately has dampened economic growth. Hence the search for a new investor: China.

To incite the interest of Chinese investors, Georgia hosted a regional Silk Road forum in mid-October. Politicians and business people from 30-odd countries were present, the Chinese delegation alone numbering several hundred participants. At the forum, Prime Minister Irakli Garibashvili outlined four possible projects for New Silk Road investments:

  • Building a new deepwater seaport in Anaklia, to handle 100 million tons of cargo per year, with the ability receive large Panamax-type vessels.
  • Modernizing Georgia’s railway network. Two large tunnels are being constructed to connect Georgia’s east and west regions. These will increase rail speed in the country by 50 percent and triple its capacity.
  • Building a new railway connecting Georgia and Azerbaijan to Kars, Turkey, and through it to the European Union. This new Baku-Tbilisi-Kars railroad will allow 45 percent faster delivery of containers and freight and passenger traffic from Asia to Europe. From the start, this railway line will be able to handle 5 million tons of cargo and one million passengers a year. Its capacity can triple in subsequent years.
  • Expanding the East-West Highway, Georgia’s main road transport artery, in cooperation with the World Bank, the Asian Development Bank, and other donors.

The railway projects that Georgia has proposed for consideration fit the New Silk Road mode, as similar projects are already being financed in Afghanistan, Pakistan, Kazakhstan, Russia, Serbia, and Macedonia. To get a flavor of what investment in Georgia’s railway system could imply in practice, the Georgian government reported on a recent experiment to test the efficiency of transport connections between China’s Xinjiang province and Georgian port of Poti. A railway cargo was loaded in China on January 29, 2015, and was unloaded in Georgia on February 6, 2015. This experiment involved not only Georgia and China, but also Kazakhstan and Azerbaijan.

The seven days it took for the cargo to travel comprised five days of actual travel and two days of border control and other inspections. In other words, nearly a third of the time in transit was spent dealing with administrative hurdles. So even if the infrastructure for fast-speed trains is built with New Silk Road financing, overall duration of the cargo transport will improve by a day or two. In contrast, if at the same time customs procedures are simplified and standardized along the whole transport corridor, time will be cut in half. The new message to Silk Road officials is clear: Invest in administrative reforms too. Hard infrastructure investment is only part of what is needed.

Here, Georgia has something to offer all other New Silk Road participants. According to the World Bank’s Doing Business project, it has the region’s most simplified customs procedures. If China, Kazakhstan, and Azerbaijan were to adopt the same rules, the new transport corridor will be much faster. And cheaper, as a result.