Alaco

29.02.2016 | Georgia eyes pivotal Silk Road role

The South Caucasus republic of Georgia is aiming to become a key transit hub along China’s Silk Road Economic Belt, but it may be pinning too much hope on the project.

In mid-December 2015, Georgia’s then Prime Minister Irakli Garibashvili and an entourage of officials assembled at the Tbilisi Central Railway Station to witness a small piece of history: the arrival of the first container cargo train from China's eastern port city of Lianyungang en route to Istanbul - a new Eurasian transport corridor, part of Beijing’s $40 billion Silk Road Economic Belt (SREB) project.

Attracted by its trade links with the European Union and strategic location in the South Caucasus, China appears to have identified Georgia as an important regional partner and a key transit hub on the SREB, its attempt to revive the ancient trading route to Western Europe.  With its economy struggling, Georgia regards cooperation with China as a way to bolster investment and economic growth.

In October 2015 Georgia hosted the inaugural Silk Road Forum, set to become an annual China-supported event that aims to promote discussion of and investment in the trade, economic development and transport initiative.  The meeting brought together government officials from 30 countries, representatives of financial and donor organisations, and 300 major Chinese companies.

Georgia’s desire to play a significant role in the SREB was underlined on February 8 when the government gave the go-ahead for the construction of a deep-sea port in Anaklia, on the eastern edge of the Black Sea, intended to create a faster maritime corridor between Georgia and Europe.  A US-Georgian consortium was awarded the $2.5 billion contract to develop the project, which at full capacity will enable Anaklia to process 100 million tons of cargo per year.

Scheduled to open in 2019, the new facility, which will also serve as a gateway for imports to other Caucasian and Central Asian countries, will handle large cargo ships that currently have to transfer freight bound for the Georgian ports of Poti and Batumi onto feeder vessels in Istanbul.  The government is investing $100 million in Anaklia’s infrastructure, including improved rail links to the port, which will feature a free trade zone to support its operation and trade.

As well as upgrading port facilities, Georgia is working with Azerbaijan and Turkey on the 826 km Baku-Tbilisi-Kars railway intended to boost economic ties between the three countries and serve as another Silk Road transport corridor.  The line, which is due to launch in 2017, is initially expected to carry 6.5 million of tons per year, with the annual peak capacity expected to reach 17 million tons. 

Georgia’s enthusiasm for the Silk Road project comes amid growing economic ties with China.  Georgia is one of the founding members of the China-led Asian Infrastructure Investment Bank, hosting the bank’s first summit last August.  In December, the two countries officially started negotiations on a free-trade agreement.  Bilateral trade has risen from $115 million in 2006 to more than $820 million in 2014, while China has become Georgia’s third largest source of foreign direct investment, increasing from $9.6 million in 2011 to $195 million 2014.

But the downturn in the Chinese economy may in time curb investment in Georgia and SREB infrastructure plans for the wider region.  China’s contracting manufacturing sector and Western European hesitancy over the project could limit the volume of cargo passing along its transport corridors - which might also prove to be more expensive than the longer sea routes for all but high-value goods. Moreover, much work still needs to be done to address practical issues, such as harmonising tariffs, easing customs procedures and ensuring that train gauges are uniform.

Additionally, there’s the question of Georgia’s viability as a secure transit hub.  Russian-backed rebels continue to occupy two of the country’s regions, South Ossetia and Abkhazia, with Anaklia very close to the latter.  Since the 2008 war, commercial ties between Russia and Georgia have been rehabilitated to a degree, but such is the volatility of the region that relations could easily take a turn for the worse, leaving Anaklia and other transport infrastructure vulnerable.

Of perhaps more immediate concern is how China will respond to the Anaklia contract award.  A Chinese-Georgian consortium had been the favourite for the development, and it’s unclear why it didn’t win.  Chinese investors may still have a role - Mamuka Khazaradze of ADC told EurAsiaNet.org that it was looking to add a Chinese partner to the consortium.  Nevertheless, the contract award is a blow for Beijing, which likely viewed the new port as a major strategic investment opportunity.      

Along with a host of other countries in the region, Georgia is hoping the SREB will transform its economic fortunes. While seemingly well placed to benefit, uncertainties over the project and Georgia’s security may mean the rewards will not be as high as it anticipates.