Baku Dialogues: ENVISAGING THE FUTURE OF CENTRAL EURASIA: THE ROLE OF AZERBAIJAN
Planning in the twenty-first century involves building strategies to address the challenges of the next 20, 30 and even 50 years. Domestic issues and country strategies can no longer be tackled without looking beyond national borders and assessing the increasingly interdependent nature of the global marketplace and its various influences. In today's globalized world with all its complex interactions, the countries of the Caucasus and Central Asia (i.e. Central Eurasia) are trying to find new synergies through which they can develop and secure their positions in the international economic and political arena of the future and become Eurasia's indispensible transport and logistic hubs.
The countries of Central Eurasia have traditionally acted as a land bridge along the major commercial routes between Europe and Asia. The Silk Road trade brought wealth and prosperity to the region's inhabitants at different stages in history. The exchange of goods introduced new ideas and technologies, enriching and advancing the development of these societies. The disruption of the ancient trade routes, however, brought suffering and hardship to the region with long-lasting impact. Some regions were gradually able to recover, while others never did. Over time, a number of commercial cities faded away as they lost the prominence they once held in the Silk Road trade, and new vibrant megacities emerged in their places. Euro-Asian trade was the economic backbone of Central Eurasia for centuries.
Today, the majority of this trade bypasses the region, and so do the attendant benefits. Large ships that can carry thousands of containers at a
time have replaced the ancient caravans of the Silk Road. Most of the trade between Europe and Asia is conducted by maritime transportation via the Suez Canal, which makes up more than 90% of the total cargo exchanged between the two continents. Therefore, the success of a modern-day Central Eurasian hub strategy largely depends on the ability of the regional states to attract some of this Euro-Asian continental trade by creating integrated and competitive intermodal transportation and logistics networks across Eurasia.
Unlike the world's great seaports, the prominent commercial cities of Central Eurasia have historically been land-based hubs. It took months and even years for the ancient Silk Road traders to travel between Europe and Asia, and Central Eurasia's hubs served as critical regional logistics
and distribution centers. Each of them had a number of caravanserais, where goods and ideas changed hands, and people and cultures met and mixed. These trading centers were connected with other regional hubs and megacities through a vast network of corridors across Eurasia and the Middle East. The Silk Road corridors were for centuries the source of prosperity for many nations in Central Eurasia.
As a result of technological advances in the twenty-first century, Central Eurasia is now poised to regain its former prominence as a land-based hub between Europe and Asia. By 2030, a tourist will be able to jump on a high speed train in Istanbul and arrive in Baku the same day; he will even have time to take a free bus tour of Tbilisi en route. He will continue his trip on an express ferry to Turkmenbashy, from where another high-speed train will take him all the way to Urumqi in China's Xinjiang Autonomous Region. The entire territory of Central Eurasia will be covered with a great infrastructure of highways, railways, airports, and logistics centers that will handle goods and passengers moving between Europe and Asia.
Azerbaijan is located at the crossroads of major Eurasian land and air transport corridors - a feature that plays a vital part in formulating its long-term hub strategy. Potentially, the country could serve not only as a commercial bridge between Europe and Asia, but also as a major distribution center in Eurasia. It has and will continue to shape a common vision for the region and to facilitate its transformation. Its vast natural resources could stimulate the development of its non-oil economy and revive non-oil trade in the region, restoring its historical position as a commercial hub along the ancient Silk Road. By 2030, the country could be a prosperous regional hub in Central Eurasia - but for this to occur, Azerbaijan and other regional partners need to set out a comprehensive regional strategy for sustainable development.
For many countries in Central Eurasia, however, envisioning the future and building an interdependent regional strategy is a complex matter. Political, economic, and social crises caused by the sudden collapse of the Soviet Union have dominated the relatively short history of independence enjoyed by these states. In 2011, they celebrated only the twentieth anniversary of the end of Soviet rule. Memories of wars, unresolved conflicts, economic hardships, and coups still haunt the generation old enough to remember the days of communist control. Fortunately, the most difficult times have been left behind, though a few crucial challenges persist.
The countries of Central Eurasia are now at the stage of development where they must complete their political and economic transitions and choose a path that would lead them into the ranks of prosperous developed nations. To do this, they need to re-build and reconnect different modes of transportation through effective logistics and infrastructure networks.
Re-Building Logistics and Supply Chain Networks
In the twenty-first century, the independent development of different modes of transportation in isolation from each other and without integrated logistics and supply chain management is no longer an option, particularly for countries aspiring to become regional hubs. Today's customers buy white and red grapes in a single sealed package without wondering much about how these grapes, one kind from South Africa and another from Chile, ended up together, or how they have managed to stay so fresh and delicious. All this is possible thanks to an advanced global supply chain and logistics network that needs to expand to Central Eurasia.
The ancient Silk Road caravans used to travel 35-40 km per day, stopping en route at small caravanserais to resupply. While the travelers rested, the
camels were fed and the caravan was made ready for the next morning. In today's terms, the small caravanserais were the motels of the ancient Silk Road, offering value added logistics services. It was every 120-150 km, a 3-4 day journey, that the caravan would reach a local trading town, which
would have larger caravanserais where merchants could trade and exchange goods. These local trading centers were in turn connected to regional hubs and megacities, forming a vast trading network across Eurasia. History recalls very few Chinese who traveled all the way from China to Venice, and very few Europeans who ended up in China. It was in the regional hubs and megacities in Central Eurasia and the Middle East where the real action took place, where goods and ideas changed hands, and people and cultures met and mixed.
Throughout history, the territory of the present day Azerbaijan has hosted a number of important caravanserais and big regional trading centers. These included regional hub cities like Mingachevir and Qabala (during the Caucasian Albania), Barda and Ganja (during the Islamic Caliphate), Shaki, Shamakha, Nakhichevan and Baku (in the Middle Ages). The territory of Azerbaijan was famous for the production of silk, natural dyes, animal (fish) glue, oil and salt, as well as carpet weaving and jewellery making. The Azerbaijani cities and caravanserais acted as commercial nodes along both the East-West and the North-South axes. The management of caravans and caravanserais was a lucrative business, making their owners 'logistics oligarchs' of their time.
The Silk Road caravans used an apparently simple yet effective supply chain that was set up along the entire route between China and India to the Middle East and Europe. The local caravanserais and regional hubs constituted the backbone of this ancient supply chain, providing essential services from board and lodging to marketing and security. Some of the caravans were state sponsored, others belonged to private entrepreneurs. Similar to the interstate block trains today, the ancient caravans had set schedules and dedicated routes. It was a multifaceted operation that involved caravans stretching for several kilometers, and it was this vast network that made it possible to travel safely through the enormous Eurasian territory, across various states and principalities. In addition, a number of ancient routes were multimodal corridors involving intermodal transportation, such as land-sea-land.
Hence the goal of reconnecting Europe and Asia and creating customer value necessitates the effective synchronization and harmonization of all supply chain activities along the entire chain, from the production factory in China or India to the customer's home in Europe, the Middle East or the Americas. In this process, logistics services and intermodal transportation would play a critical role, and logistics centers in particular would act as fundamental connections between each node along the route.
SPECIAL LEGAL REGIME AND INVESTMENT ENVIRONMENT
In addition to promoting intermodal transportation and interconnectivity in the region, a successful integrated hub strategy would require a flexible and sustainable legal regime that would guarantee long-term investments and knowledge transfer. In particular, incorporating a Special Economic or Logistics Zone (SEZ) concept into the development of national and regional transport hub strategies would generate trade and attract Foreign Direct Investment (FDI) and know-how. This would allow the governments to set up logistics zones at any location across the country, regardless of the zone's size or specialty; to choose more than one developer and/or operator for each zone depending on the zone's features and specialization area; to set up a statebacked zone corporation that could participate in regional development and international competition; to apply different PPP investment models to each zone based on the specific needs and priorities of the state; to share the cost of site construction with the private sector; and to create efficient and effective regulatory mechanisms and guarantees for the zone's administration and non-oil sector FDI inducements. More importantly, this would create a web of special logistics zones across Central Eurasia, as it once was, strengthening interoperability and interconnectivity between the countries in the region as well as the producers and end-users. With respect to Azerbaijan, two key projects – the new Baku Port at Alyat and Baku Heydar Aliyev International Airport – constitute the backbone of its future hub strategy. By incorporating a special legal regime concept (analogous to Production Sharing Agreements in the energy sector) into the hub strategy, Azerbaijan would construct a flexible and effective legal framework guaranteeing the flow of goods and trade. This approach could be duplicated by other neighboring countries along the Silk Road and help harmonize and shape the regional hub strategy that is bound to bring benefits to all.