Uzbekistan and Caucasian corridor to Turkey: interview

Parliamentary delegation of Uzbekistan led by First Deputy Chairman of the Senate of Oliy Majlis (Parliament) Sadiq Safaev is on a visit to Georgia these days. What are the goals of the visit? What makes Georgia interesting to Uzbekistan? A well-known Uzbek economist Bakhtiyev Ergashev speaks of these and other issues in an interview with EADaily.

“The parliamentary delegation of Uzbekistan travelled to Georgia from Azerbaijan. There was a serious talk with the leadership of that country. The Caucasus transport corridor was on agenda. The visit to Tbilisi is just part of the long trip of the delegation, which is, in turn, part of a big policy to develop international transport corridors and transport cooperation,” Mr. Ergashev says.

What attracts Uzbekistan in Caucasian transport corridor: access to Black Sea ports or farther to Europe?

A wide range of topics are discussed in both Baku and Tbilisi. The key topic is establishment of transport and communication cooperation between Uzbekistan, Azerbaijan and Georgia. I’d like to recall that in Tashkent, on March 18, 2017, a trilateral meeting of the three countries railway department leaderships was held. An arrangement was made to weigh opening of railway offices by the sides to provide operative solution to problems emerging during transportation. It was a very important agreement, and a relevant protocol was signed after the meeting. About ten days later, Uzbekistan’s delegation travelled to Azerbaijan and Georgia.

Which were the most interesting issues discussed in Baku and Tbilisi?

The key final document of the talks in Baku is the protocol. The major goal of the meeting in Azerbaijan and Georgia was to verify the conditions of close cooperation. Construction of Baku-Tbilisi-Kars (BTK) railway is nearing completion now. This railway will help Baku reach Turkey via Georgia and then farther to Mersin port, in the Mediterranean. Access to the port means trade ties with the countries of Near and Middle East, North Africa, Europe. This is one of the ways to reach even U.S. It is very important.

Recalling the first visit by President of Uzbekistan Shavkat Mirziyoyev to Turkmenistan, a range of agreements were signed in the transport and transit sectors, in particular, cooperation of railway administrations of Uzbekistan and Turkmenistan. During the visit, presidents of the two countries opened new motorways and railway bridges via Amu Darya.

I’d like to say that this work to improve the transport infrastructures in Turkmenistan and establish cooperation between Tashkent and Ashgabat is valuable, since it creates an opportunity to export goods via Uzbekistan and Turkmenistan, the Caspian Sea, Caucasus. This gives Uzbek producers export and transit opportunities. Now, to enhance development of the transport and communication sectors in Turkmenistan, Ashgabat is seriously working on modernization of Turkmenbashi Port on the Caspian Sea. They anticipate about $2 billion investments in modernization, expansion of the port and construction of new port facilities to increase the designed capacity to 15 million tons of cargo per year.

In fact, it is the idea of Europe-Caucasus-Asia transport corridor that implemented yet as part of TRACECA project. The first TRACECA conference held 20 years ago provided for construction of that corridor. The idea is being implemented slowly, with big difficulties, setbacks and delays. Thus, the work of the delegation is the signed protocols, they work to ensure direct transshipment of cargoes from Uzbekistan to Mersen port. The key issue to be settled during these talks, and it will be settled, is setting and applying a through fare on the BTK route.

Will through fare be single for all countries on the route?

A through fare on BTK route (Azerbaijan, Georgia, Turkey) is in question so far. Uzbekistan and Turkmenistan are discussing application of the through fare. If these talks are a success, we will have a single through fare from Uzbekistan to Turkey.

What will it give you?

It will help reduce transport costs, speed up passage of cargoes, reduce costs of freight traffic on this route. TRACECA - Turkey-Caucasus-Turkmenistan-Uzbekistan - idea will have a logical extension after we launch construction of China-Kyrgyzstan-Uzbekistan transport corridor. The idea of that corridor was announced yet under first president Islam Karimov in 1996. Since then, the idea has been much spoken of, there have been repeated efforts to start a feasibility study, but nothing has been done for practical work. Nevertheless, the efforts to develop the transport and communication projects in Central Asia supposed that this project will be implemented.

Then, together with the communications in Uzbekistan we will have a through transport and communication highway stretching from Turkey up to the sea ports of China. It is another serious East-West global transport way. To understand deeply the logic of transport corridors development in the region, it is necessary to consider all this at large. This is not the total of some separate projects. This may turn Central Asia into a transport and transit hub of continental importance. There is something that is important as well. It is necessary to say why Uzbekistan is so actively involved in these processes. Alongside with Liechtenstein, Uzbekistan is unique, as it has no access to the sea and is separated from those processes by the territories of two countries. For Uzbekistan, transport corridors in all directions is a matter of economic survival and economic development. Both export and import to Uzbekistan is very expensive. If we seek sustainable economic growth, we must settle the problems of transport and transit communications. We must make them inexpensive, so that it boosts competition of routes, optimizes transport flows both export and import.

These transport projects are passing by Russia. Experts say, it may not like them and will take steps to fail these projects or, at least, have them pass via its territory.

Competition of transport corridors implies that each country will be trying to direct transport flows via its territory to meet its national interests. Russia has always sought to direct most of freight traffic flows between China and Europe via its territory. Russia does much to that end. However, the project we are speaking about is 20-year-old. How can it be hampered now? I think, it will be hard to do it now. The railway is already built, and the first diesel locomotives were launched in test run mode. Cargo passage procedures are being reviewed now: fares, prices, types of goods, name of products etc. This project will be implemented. As for the second section – China-Kyrgyzstan-Uzbekistan, Russia can be blamed for impeding its implementation. I think, amid ongoing China-Russia rapprochement, it is necessary to try to synchronize the Russian initiatives in Central Asia and China’s Silk Road Economic Belt project. Russia’s arguments against construction of that route will be overcome, and China will have the major part in it, of course. I think China and Russia will reach an agreement and the project will be implemented, otherwise the project Europe-Caucasus-Asia we are speaking about will not be completed.

Uzbekistan waged an import-substitution policy. Is that issue still relevant?

Uzbekistan did not close routes, it introduced very tough protectionist tariff and customs regime. For instance, car customs tax is above 100%. Such high rates are only in Uzbekistan and India. This was done to support their own producers. If the transport projects are implemented, including North-South that will partially pass through the territory of Uzbekistan, these projects will in no way influence the import substitution policy. One can be a transit country and open one’s communications, maintaining a very tough protectionist tariffs and customs regime at the same time.

In the mid-term outlook, this scheme will be maintained. No country wants to be just a transit country, Uzbekistan has rather aggressive industrial policy aimed at establishment of new industrial productions. Industrial goods need sales markets. The more so as, now, Uzbekistan more and more speaks of transition to export-oriented development. Of course, very soon we will see gradual reduction of the protectionism level, reduction of customs and tariff barriers.

What goods is Uzbekistan ready to offer to the global market?

The key export item is natural gas. Uzbekistan still exports a significant volume of cotton wool, uranium, ferrous metals, cement. There is a fixed list of export goods and it is hard to change it. Fruits and vegetables have always been and will always be on that list. During the recent years, some changes have been made in exports, particularly, Uzbekistan intensified export of cars and spare parts. There is a task to diversify exports.

How?

Due to finished textile, first. We should sell not cotton wool and not even yarn, but at least cotton goods, or better knitted-fabric, and export it to EAEU countries, and others too. Uzbekistan has embarked on development of pharmaceutical industry, and pharmaceutical products will account for a high percentage in total export. We stake on export of new construction materials and we are ready to export electric and technical products, household devices. The country has launched enterprises with the help of Korean and Chinese investors. They will help increasing exports of high-tech products.

Here we bump into the problem of exchange rates unification and economy liberalization. What will be done to that end?

It is a permanent problem and in the short-term outlook, I do not see unification of the exchange rate and introduction of full conversion due to some objective economic processes – export has shrunk dramatically, prices of all major export items have fallen, and foreign exchange inflow has decreased as well. Free conversion in such conditions is nothing, but suicide. Nevertheless, the authorities have already lifted some small restrictions that in fact seriously affect business and economic environment. For instance, compulsory sale of currency gain by exporters was 50% of total proceeds. Now, it has been reduced to 25%. Businessmen have appreciated that. Payments in terms of foreign exchange between economic entities inside the country has been facilitated significantly.