_ Yaroslav Lissovolik, PhD in Economics, Member of the Borad, Chief economist with the Eurasian Development Bank. Moscow, May 29th 2017.
In the discussions held at the “One Belt – One Road” (OBOR) Forum in Beijing, a great deal of attention has been devoted to the significance of this mega-project for development and the connectivity across national boundaries in Eurasia. The OBOR project was pronounced as a “win-win” option for countries participating in this mega-effort, whose important features apart from building connectivity include openness and non-discrimination. But while the importance of connectivity is well recognized by now as an essential feature of the OBOR project, its true significance for Eurasia is yet to be fully understood and evaluated from the point of view of the idiosyncratic features of the continent’s geography.
This unique nature of Eurasia’s geography has to do with the unprecedented distance of Eurasia’s Hinterland (inward) regions from the sea coast and accordingly from international markets. This problem is particularly acute for landlocked economies without access to the sea – Eurasia harbours 26 out of 44 (59%) of all of the world’s landlocked countries. Moreover, the scale of “inwardness” of some of the regions of Eurasia in terms of geographical location is truly unique:
– Kazakhstan is the largest landlocked country in the world
– Belarus is the largest landlocked country in Europe
– Kyrgyzstan and Tajikistan apart from being landlocked are among the countries with one of the highest levels of elevation above sea level in the world
– Uzbekistan is one of two countries in the world that is separated from the coast by more than 1 country
– Moscow is the farthest capital city from the sea coast in Europe, while Bishkek is the farthest capital city from the coast in the world (all top-5 of the most distant capitals from the sea coast in the world are in Asia, primarily Central Asia)
Another way to appreciate the uniqueness of Eurasia’s inwardness is to look the so-called continental “pole of inaccessibility”, which denotes the part of land that is farthest in the world from the coastline. It turns out that this pole is in Northern China (not far from the intersection of the borders of two landlocked countries (Kazakhstan and Mongolia) as well as China and Russia) close to the city of Ürümqi, making it the most distant city from the coastline in the world. Perhaps it is no coincidence that it was one of the focal points in the Silk road for centuries as well as in the current trajectories of the OBOR.
The main negative factor for continental countries as compared to coastal regions is their higher transportation costs, as land transportation turns out to be much costlier than maritime transport. After comparing country statistics of foreign trade on CIF and FOB terms, Radelet and Sachs (1998) established that land-locked countries’ transportation costs exceed those of coastal economies by 50%. Other estimates indicate that the share of transportation costs in total imports may reach 10–20% for countries without access to a seacoast, while for developed countries and the US this figure is 4.7% and 2.2%, respectively (Arvis, 2010).
In view of the higher transportation costs faced by landlocked economies, their competitiveness takes a double hit as imports become more expensive, while exports turn out to be less competitive in international markets – as a result according to the research undertaken by the World Bank:
– land-locked countries have on average 30% lower trade turnover than countries with access to the sea;
– continentality reduces a country’s growth rate by 1.5% as compared to coastal countries;
According to UNCTAD, “the lack of territorial access to the sea poses persistent challenges to growth and development of these countries and has been the main factor hindering their ability to better integrate in the global trading system. The transit of export and import goods through the territory of at least one neighboring State and the frequent change of mode of transport result in high transaction costs and reduced international competitiveness” .
In recognition of the importance of the limitations in geography, most notably the landlocked status of developing countries, the United Nations launched several programmes, the first such effort being the Almaty Declaration and Programme of Action (2003-2004) that seeks “to establish a new global framework for developing efficient transit transport systems in landlocked and transit developing countries, taking into account the interests of both landlocked and transit developing countries. The Programme aims to (a) secure access to and from the sea by all means of transport; (b) reduce costs and improve services so as to increase the competitiveness of their exports; (c) reduce the delivered costs of imports; (d) address problems of delays and uncertainties in trade routes; (e) develop adequate national networks; (f) reduce loss, damage and deterioration enroute; (g) open the way for export expansion; and (h) improve the safety of road transport and the security of people along the corridors” .
In 2014 during the Second United Nations Conference on Landlocked Developing Countries the UN adopted the Vienna Programme of Action for Landlocked Developing Countries for the Decade 2014-2024, which advanced the following priorities for landlocked developing nations : (a) To significantly increase the quality of roads, including increasing the share of paved roads, by nationally appropriate standards; (b) To expand and upgrade the railway infrastructure in landlocked developing countries, where applicable; (c) To complete missing links in the regional road and railway transit transport networks.
In sum, the importance of connectivity in Eurasia is due to the significant limitations of the region’s landlocked economies in gaining access to international markets due to high transportation costs. In this regard OBOR serves to assist such economies in surmounting transportation and logistical bottlenecks and improves their export capacity, all of which creates the conditions for attaining the UN development goals for the region’s economies. In other words, the OBOR project through providing connectivity to the countries that most need it goes a long way to rendering economic integration more equal and inclusive.
In a similar vein, the Eurasian Economic Union performs a crucial role of improving the access of its members – 4 out of 5 of which are landlocked – to international markets. It serves to address the issues of connectivity for landlocked economies via reducing customs duties and non-tariff barriers, while also advancing connectivity in transportation via the formation of a Unified transportation space, which is to create 100,000 new jobs, raise labour mobility by 30%, increase the speed of freight transportation by 10-15%, with the respective rise in speed for international corridors reaching 25%.
The important point is that in dealing with the challenges faced by landlocked economies in Eurasia, the OBOR and the Eurasian Economic Union projects complement and reinforce each other – a stronger Eurasian Union becomes more competitive as the main connecting line between Europe and Asia, while on the other hand the advancement of the OBOR project reinforces the connectivity and integration amongst the member countries of the Eurasian Economic Union. In the end, it is through regional economic integration that developing landlocked countries in Eurasia can transform geography from what is perceived as a handicap into strength as greater integration allows Eurasian countries to be more competitive in intermediating the flow of investment and trade between the East and the West in such integration projects as the One belt-One road project or the Eurasian Economic Union.