China Funded Lapis-Lazuli Transport Corridor Unites Caucasus & Central Asia

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The Lapis Lazuli Corridor Agreement Being Signed In Ashgabat

China’s reach into Central Asia and the Caucasus has taken a major step forward with a new initiative poetically known as “The Lapis-Lazuli Transit, Trade & Transport Route” (or the “Lapis Lazuli Corridor”). This aims to enhance regional economic cooperation and connectivity between Afghanistan, Turkmenistan, Azerbaijan, Georgia, and Turkey, and according to the Chinese and regional governments concerned, thereby expand economic and cultural links between Europe and Asia. In doing so, the initiative seeks to improve transport infrastructure and procedures (including for road, rail, and sea), increase exports, and expand the economic opportunities of the countries benefiting from this new transport corridor.

Afghanistan, Turkmenistan, Azerbaijan, Georgia and Turkey signed an agreement last month on the creation of the Lapis Lazuli transport corridor which is set to connect the five countries. The document, which was finalized after three years of technical talks, was signed on the margins of the 7th Regional Economic Cooperation Conference on Afghanistan (RECCA) in Ashgabat on November 15th.

The project is unusual and in some part politically sensitive because it is largely based on existing supply chains paid for by the US military  to support the war in Afghanistan following 9-11. While the conflict against the Taliban is still on-going, it is not to the same level of intensity as before, hence the availability of the route for commercial purposes and it being turned over to regional governments to utilize as a trade and connectivity platform from the heart of Afghanistan to the borders of Europe.

There are financial and regulatory reforms going hand in hand with this.  New trade, transit and transaction costs will be reduced, in part, through a new Custom Integration Procedure and, between Afghanistan and Turkmenistan, in addition to a new Cross-Border Transport Agreement. Its projected impact is considerable not only because most of the required infrastructure is already in place, but also because most of the investment required will focus on improving policy and governance. The Economic Rate of Return and Net Present Value still needs to be established, but with a discount rate applied at 12%, the overall returns are expected to be positive. The Lapis Lazuli Corridor will connect with Turkey’s Middle Corridor Project (“East-West Trans-Caspian Trade and Transport Corridor”).

The corridor begins from Afghanistan’s Aqina City  in northern Faryab province and Torghundi City in western Herat, both of which are sited close to the Afghani border with Turkmenistan. Crucially, both Aqina and Torghundi have rail connectivity through to Turkmenistan. From there, the routes continue west to the Caspian Sea Port of Turkmenbashi,  in Turkmenistan. After transiting  the Caspian, the route continues on to Baku, capital of Azerbaijan, and then connects onward to Tblisi, capital of Georgia, as well as the Georgian ports of Poti and Batumi; finally, the corridor will connect to the cities of Kars and Istanbul, Turkey, at the gates of Europe.

The name “Lapis Lazuli” is derived from the historic route that Afghanistan’s lapis lazuli and other semiprecious stones were exported along, over 2,000 years ago, to the Caucasus, Russia, the Balkans, Europe, and North Africa.

Discussions concerning logistics operations of the route are still in progress, however the associated feasibility studies, consideration of the project’s long-term infrastructure maintenance (O&M), and the financing have all been sourced for the corridor’s related infrastructure requirements.

Major actions needed to complete route include: 1) improvement of road conditions and transit facilities along major highways; 2) expand rail links between Afghanistan and Turkey and beyond; 3) improve multi-modal land ports in each of the five Lapis Lazuli Corridor countries; and 4) undertake a Cost-Benefit Analysis on establishing Cross-Border Economic (Tax Free) Zones between the countries along the corridor.

Sewing such a tax free deal together though would prove a challenge, and likely involve in some form the Eurasian Economic Union and Commonwealth of Independent States Turkey has expressed an interest in having a Free Trade Agreement with the Eurasian Economic Union, while Turkmenistan is an associate member of the CIS as is Azerbaijan. Georgia withdrew as a member of the CIS following the Russia-Georgia border war in 2008, and regional rivalries and issues with Russia would be hard to solve without support from Moscow. China however, which is also pursuing a Free Trade Agreement  with the Eurasian Economic Union, may also be influential. Keeping both Beijing and Moscow at arms length may also suit the Lapis Lazuli nations, who could agree their own customs and trade tariff regulations along the route.

There are additional complexities, not least the security situation in Afghanistan, but also with American strategic interests along almost all the entire corridor. China especially has been somewhat reluctant to publicly acknowledge the route as being part of its Belt & Road initiative, although it is providing both finance and construction teams and materials to help develop and upgrade the route.

Current project estimates exceed US$2 billion, while Institutional Partners include China (via the Bank of China), the Kyrgyz Republic, Tajikistan, Afghanistan, Iran, Turkey (including its Foreign Economic Relations Board), the Asia Development Bank, the World Bank, and the United States. Products can be expected to be mainly agricultural based, electronics and plastic items, as well as hand made expensive items such as carpets, other fabrics such as cottons, chemicals, and indeed, lapis lazuli – Afghanistan still produces much of the worlds supply of the stone, which is used in jewellery, expensive paints, and dyes.

 

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