TIED WITH "ONE BELT"

One of the most important outcome of the second One Belt, One Road summit recently held in Beijing was the agreement between Azerbaijan and China to expand cooperation in a number of promising areas. Along with the development of transport and logistics components of the Great Silk Road project, the Chinese business expressed its readiness to cooperate with Azerbaijan in the oil, gas and petrochemical sectors, electric power generation, agriculture, and the creation of a number of industrial enterprises, particularly the construction of a tyre plant in Sumgayit.

Project of the Century

The ultimate objective of the One Belt, One Road project initiated by China in 2013 is to form and promote new economic partnership mechanisms in Eurasia by strengthening existing bilateral and multilateral relations and joint structures and their interaction with the participation of China. In the core of this initiative is an intention to form a transport and logistics infrastructure and, at the same time, to develop the economic belt throughout the Great Silk Road. This will be based on trade and investment projects and the introduction of modern technologies with the participation of as many countries as possible using Chinese and foreign capital. One Belt, One Road is designed to boost technological development and economic prosperity of all developing countries and "new economies" involved in the project. To evaluate the potential of the initiative, it is worth mentioning that the countries participating in the project have rich natural reserves available for almost 63% of the world's population. The estimated economic potential of the megaproject reaches $21 trillion.

The first One Belt, One Road forum took place in May 2017. As of today, the project has embraced 124 countries, as well as 29 international organisations. The second, even a larger scale forum held in Beijing on April 24-27 was attended by 37 heads of states and international organisations. Held under the theme Belt and Road cooperation shaping a brighter shared future, the summit defined specific goals and primary joint projects. As a result, the participating states concluded 283 agreements for a total amount of $64 billion.

Azerbaijan has been an active participant of the initiative since 2015, when the government signed a memorandum of understanding on the establishment of the Silk Road Economic Belt. Over the past four years, along with the countries of the region, Azerbaijan has successfully completed multibillion-dollar projects to build a modern port infrastructure, upgrade the railway sector and, of course, commission the globally significant Baku-Tbilisi-Kars (BTK) transport corridor. Today this is the most promising direction for joint Azerbaijani-Chinese cooperation. Baku, in particular, is primarily interested in direct benefits by attracting Chinese carriers for the shipment of goods from China to Europe through the transport and logistics infrastructure established in our country.

Silk Road Cooperation

Azerbaijani President Ilham Aliyev, who also took part in the second forum on the One Belt, One Road project in Beijing, based a significant part of his speeches on the cooperation in the transport sector as part of the Silk Road projects. "Thanks to its geographical position and investments in the transport sector, Azerbaijan is a bridge between Asia and Europe. Although Azerbaijan does not have direct access to the global maritime space, we could become one of the transport hubs of the region, cooperating with neighbouring countries involved in projects East-West and North-South," President Aliyev said.

Mr. Aliyev also said that Azerbaijan has a modern air transport infrastructure, including six international airports and the Heydar Aliyev International Airport awarded five stars by the international transport-rating agency Skytrax in the Best Regional Airport category. Azerbaijan also has the largest transport fleet of 260 vessels in the Caspian Sea. Over the past fifteen years, 15,000 km of roads and highways have been constructed in the country. According to the World Economic Forum held in Davos, Azerbaijan ranks 34th in the world in terms of the quality of roads. President Ilham Aliyev underlined the availability of an extensive railway network, where large-scale works on modernisation and technical re-equipment are underway.

In fact, the Baku-Tbilisi-Kars railway launched in October 2017 is recognised as the most reliable and shortest land route between Europe and Asia. Since the commissioning of the corridor, 184 thousand tons of cargo were handled along the route, including more than a hundred trains, including with containers. On average, two or three cargo shipments are carried out in a week, mainly between Turkey, Azerbaijan and Kazakhstan, and more recently with the connection of freight forwarders from Georgia, Uzbekistan, Turkmenistan, Kyrgyzstan and Russia.

The BTK route mainly serves to transport construction materials, cleaning products, food, grain, cotton and other agricultural raw materials, as well as steel and zinc. The development of cargo transportation along the corridor is still at an early stage, but as the project develops in the medium term, the volume of cargo transportation will reach 3-5 million tons per year, and its growth is expected to reach 15-17 million tons of cargo per year. Such forecasts look quite reasonable if we take into account the expected increase in the number of participant carriers from China, Korea and other South-East Asian countries. In turn, after the BTK railway line was connected to the Lapis Lazuli route launched last year and designed to transport cargo from Afghanistan, the transit potential of Azerbaijan further increased. However, the main driver of growth for BTK should be connecting carriers from China. Today the volume of trade between China and Europe has reached $1.5 billion per day, and in the next five-six years this trade flow will exceed $2 billion. The more is the share of transit cargo passing through Azerbaijan the more is the value of the BTK project.

According to the President of Azerbaijan, the most tangible benefit of Azerbaijan's participation in the Silk Road projects was the commissioning of new components of the Baku International Sea Trade Port (BISTP) in Alat in May 2018. The new port already makes it possible to ship 15 million tons of cargo, including 100 thousand containers. Subsequently, the capacity of the Alat port will be expanded to 25 million tons, including 500 thousand containers annually.

It is also planned to create a free economic zone (FEZ) on an area of ​​100 hectares near the Alat port. It is located at the key junction of the international transport corridors North-South and West-East and claims to become one of the main logistics hub for transportation, cargo handling and distribution. In the future, it is planned to create joint ventures for the production of goods for export to the markets of the South Caucasus, Turkey, Iran, Eastern Europe, Central Asia, southern Russia and China.

Thus, in Beijing, Azerbaijan demonstrated its transport potential and presented a portfolio of investment projects as part of the development of the Alat FEZ, in which partners from China and other interested states can participate.

Remarkably, the participants of the forum on the One Belt, One Road project highly appreciated the achievements and potential of Azerbaijan in the transport sector. In particular, ADY Container LLC (a subsidiary of Azerbaijan Railways) and the Chinese Xi'an Continental Bridge International Logistics Co. Ltd signed an agreement on a strategic partnership in the transport and transit, planning to ship 30 container trains through the Trans-Caspian International Transport Route (TCITR) in 2019. Each of the two companies expects to send 30 container trains of 2,460 containers along the route in 2019, which will also play an important role in expanding the potential of the Alat Port as a transport hub.

Other areas of economy

Despite the dominant role of transport initiatives within One Belt, One Road, Azerbaijan is successfully developing cooperation with China in a number of other areas. According to the State Customs Committee, in 2018, the trade turnover between the two countries reached $1.31 billion. In recent years, Baku has been consistently expanding the export potential through the establishment of trade missions in various regions of China, including Urumqi, Liuzhou and Shanghai.

At the same time, Azerbaijan tries to attract Chinese investors to the implementation of industrial projects in the country. Thus, during his visit to Beijing, President Ilham Aliyev met with the leaders of a number of major global companies, including leading Chinese corporations. As a result of these negotiations, 10 documents on cooperation in various fields worth $821 million were signed. Thus, large investments will be made in the industrial sector of Azerbaijan.

"Energy supplies have created the foundation of our development. Over the past 15 years, Azerbaijan’s economy has more than tripled. We could attract $260 billion to the country, about half of this amount comes from foreign investment to create modern infrastructure. Today, our main goals are to diversify the economy, particularly through the development of industry, agriculture, tourism, the service sector and ICT. The business environment existing in Azerbaijan is one of the most advanced in the world. According to the latest Doing Business report of the World Bank, Azerbaijan is ranked the 25th for its favourable business climate. Today the country is among the ten most reformist countries of the world," President Ilham Aliyev said.

Numerous contracts and agreements concluded during the forum in Beijing confirm the words of the president. As part of negotiations between Azerbaijan’s Energy Minister Parviz Shahbazov and the head of the Chinese Energy Administration, Zhang Jianhua, the parties reached mutual understanding on expanding the activities of Chinese companies in the oil and gas, petrochemical, processing and power sectors of Azerbaijan. In particular, the Chinese Energy Administration noted its readiness to assist in expanding the participation of Chinese companies in the development of renewable energy sources (RES) in Azerbaijan.

Even more concrete results were achieved during a meeting between President Ilham Aliyev and the head of China National Electric Engineering, Zhao Hai, which resulted in a protocol of intent on the construction of a tyre plant in Sumgayit Chemical Industrial Park. Azerbaijan Investment Company (AIC) can become a partner of China National Electric Engineering. According to preliminary data, the project is estimated at about $450-500 million, the project implementation period can be three years, and the payback period is five years. The export-oriented enterprise will bring a lot of profit, will create hundreds of new jobs and, not least, reduce dependence on imports. In Azerbaijan today there is no enterprise for the production of tires, the annual need for which is 2.5 million units for cars and 500 thousand units for trucks.

Yet another important achievement of the recent summit in Beijing is expected from the implementation of joint projects in the agro-industrial sector. So, the giant Chinese state corporation China CAMC Engineering Co., Ltd. (CAMCE) and Azerbaijan’s AS Qrup Investment signed a strategic cooperation agreement, under which CAMCE will provide financial and advisory support to AS Qrup Investment in two areas - the creation of an agro-industrial and logistics hub and expansion of logistics base. As part of the first direction, it is planned to expand the activities of AS Aqro, a company owned by AS Qrup Investment in Guba, Goychay and Baku, where agro-industrial and logistics hubs will be established. On the territory of the agro-industrial complex, AS Qrup Investment Group begins operations in new industrial sectors, such as the production of fruit concentrate and juices. Another area of ​​strategic cooperation with Chinese partners provides for a multiple increase in logistics services provided by the group of companies: the infrastructure of Fresh Logistics will increase, and the number of refrigerated trucks will be increased to 200. Under the agreement, AS Qrup Investment and CAMCE will also explore the potential for cooperation in other areas, for which mutual visits and meetings at the level of company management are planned.

Minister of Economy of Azerbaijan Shahin Mustafayev noted that Azerbaijan has strengthened its position as China’s main trading partner in the South Caucasus region - our country’s share in China’s trade with the countries of the South Caucasus is 43%.

The above projects are only the beginning of a large investment, technical, trade and other cooperation between China and Azerbaijan.

"One Belt, One Road, along with the provision of new transportation facilities and investments in industry, also encourages trade, tourism and humanitarian contacts between the nations, and also serves to establish stability, security and peace in Eurasia," President of Azerbaijan Ilham Aliyev said summing up the multifaceted significance of the large-scale Chinese project.