Executive summary

Regional integration: creating traffic and demand on the route will largely stem from increased regional economic and trade integration

From a private sector’s perspective, the Middle Corridor is currently less attractive than other alternative routes. Limited traffic on the route largely reflects the absence of demand for goods from Central Asia and the Caucasus, as well as the relatively low level of intermediate import demand from these countries. As a result, the corridor is mainly used as an East-West transit route, while regional trade links and West-East traffic are largely insignificant.

Increased regional economic and trade integration could pave the way for better GVC integration and the development of the Middle Corridor into a major trade route connecting Asia to Europe. The disruptions to global trade caused by the COVID-19 pandemic, and subsequently by Russia’s war on Ukraine, are an opportunity for both Central Asia and the Caucasus to play a larger role in global supply and value chains. Cost and efficiency gains and increased market size for regional production following from deepened regional economic integration would create regional demand and incentivise private sector participation in Middle Corridor development.

While increasing regional economic integration is a long-term goal, governments can support the creation of regional demand in the short and medium-term. In particular, policy makers, in collaboration with the private sector, should (i) further improve the overall business climate across the region to support private sector development and increase regional economic potential; (ii) develop regional logistics services to better integrate regional markets; and (iii) improve regulatory frameworks to support the development of transport connectivity contributing to the greening of the region’s economies.

Trade facilitation: reforms should focus on advancing digitalisation and harmonisation of border procedures and permit requirements

Cumbersome transit and trade procedures add to border point congestion and result in inconsistent and unpredictable transit and crossing times, further reducing the route’s attractiveness. Despite trade facilitation reforms in Azerbaijan, Georgia, Kazakhstan, and Türkiye, a regional approach to the route’s development is missing. In particular, the Middle Corridor’s attractiveness for the private sector suffers from an overlay of multiple and unharmonised license and permit requirements, increasing transit time and cost. Deficient border customs capacity and a lack of co-operation among customs agencies along the route also lead to repetitive inspections and delays, creating congestion when traffic increases.

Further advancing trade facilitation reforms at the regional level can increase the Middle Corridor’s capacity in the short and medium term. Governments along the route can rapidly reduce transit times and costs as well as increase predictability of transit times by (i) further harmonising and fully digitalising transit and border documents for all transport modes; and (ii) improving customs capacity through enhanced data exchange, modernised border procedures, and training of border officials.

Infrastructure: additional investments are needed to improve multimodality across the route and port and vessel capacity in the Caspian Sea

Targeted adjustments to the infrastructure network along the Middle Corridor can translate into increased traffic in the short and medium term. In recent years, Azerbaijan, Georgia, Kazakhstan, and Türkiye have been modernising and developing their road, rail, and maritime infrastructure. However, congestion at border points and seaports remains high, and reduces the route’s attractiveness. In particular, container and vessel fleet capacity are not in line with railway freight volumes, leading to delays in seaports reinforced by the low level of port infrastructure automation around the Caspian Sea and lacking multimodal infrastructure to avoid multiple loading and unloading for ferry journeys. At border points the issue is similar.

Increasing regional trade flows and supporting the Middle Corridor’s attractiveness will require targeted infrastructure investments. Given the uncertainty about long-term traffic volumes along the route, governments should focus in priority, and in parallel to trade facilitation reforms, on addressing immediate gaps reducing the route’s attractiveness. In particular by (i) developing multimodal (rail-road) capacity at border crossing points and seaports; (ii) increasing fleet capacity and regularity in the Caspian Sea; and (iii) developing rail capacity.

Transnational co-operation: a common regional approach is required to implement these reforms, and deepen regional economic and trade integration

Despite intensified regional cooperation to support the development of the route in recent years, regional competition and limited co-ordination have prevented a joint approach so far. Reform and investment efforts to address main bottlenecks have remained largely national so far, and implementation suffers from limited co-ordination both between levels of government at the national level and across countries. In addition, while the private sector has been very active in working towards common standards and addressing recurrent issues along the route, it has been mainly left out from strategic discussions about the route’s development, both at the national and regional levels.

Developing the Middle-Corridor’s attractiveness will require improved co-ordination across national government levels and increased regional co-ordination. Achieving sustainable improvements in trade flows will require a combination of national initiatives and regional co-operation, a common approach to infrastructure and trade facilitation reform implementation and sequencing, and a strong political commitment to build and integrate regional markets in Central Asia and the Caucasus. In particular, governments of Azerbaijan, Georgia, Kazakhstan, and Türkiye should (i) develop common institutions to support the development of the route; (ii) advance trade facilitation reforms at the regional level and in line with European standards; and (iii) align national and regional infrastructure plans.