21 Dec 2016
Russia Looks to Boost Coffers Through Belt and Road Co-operation
Faced with natural resources export uncertainties, Russia hopes to capitalise on its strategic geographic advantages.
Russia is looking to capitalise on its geographical advantages as a primary trade corridor between East and West. To this end, it is counting on its participation in a number of international infrastructure projects – most notably China's Belt and Road Initiative (BRI) – to have a knock-on effect to its wider economy, reducing its reliance on revenue from the sale of natural resources, a sector vastly exposed to fluctuations in price.
According to recent research by the Russian Ministry for Economic Development, less than 7% of the country's potential as a trade route is currently being exploited. The same research also highlighted the importance of further developing Russia's two principal transit corridors – East-West (including the Trans-Siberian route) and North-South (the Baltics to the Persian Gulf, as well as the Arctic Route).
This future development is seen as hinging on successfully marrying Russia's own infrastructure projects with developments prioritised under the BRI initiative. Working with fellow members of the Eurasian Economic and Customs Union (EECU) – Armenia, Belarus, Kazakhstan and Kyrgyzstan – on a number of projects of mutual interest has also been identified as a priority.
To date, the Sino-Russian joint working group charged with exploring potential areas of co-operation has identified 20 projects as worthy of further development. As well as infrastructure initiatives, projects relating to power generation, agriculture and machinery have also been green lit.
A number of these projects are now under way, including work on the Europe-Western China International Transport Route, the Taman Seaport Bulk and Container Cargo Terminal and the Yamal-SPG Natural Gas Pipeline. A number of other projects, however, remain at the planning stage, most notably the Western China-Kazakhstan-Russia-Belarus Highway, the Moscow-Beijing Highway, the Siberia Strength 2 Pipeline and the hydro-power generation stations earmarked for Heilongjiang.
At present, the current level of sea-freight rates versus railway tariffs makes it uneconomical to deliver most China-Europe cargoes via Russian territory. In order to make the land routes viable, deliveries would have to take half the time required for marine freighting, with the reduction in associated costs mitigating the higher rail fees.
As an alternative – and one favoured by the Eurasian Economic Integration Think-tank – land delivery costs should be cut by up to 40%, making the service highly competitive with its marine counterpart. The Think-tank also emphasised its belief that the aims of the BRI could only be delivered by nurturing the Central Asian markets and by developing new logistics chains along the China-Europe-China transit corridors.
Despite these reservations, Russia is set to be one of the key beneficiaries of the BRI, with many of the proposed trade routes crossing its territory. Similarly, the country will also benefit from other members of the EECU becoming more actively involved in the global logistics sector.
This year, some 74% of the cross-Russia trade flow originated in China, up from just 41% in 2015. Although the majority of such cargo is ferried by China's rolling stock, the Russian Railways Corporation also saw its volume of China-Europe cargo grow by 7% this year.
In addition to rail freight, it is now widely expected that China will increasingly look to road haulage as a means of increasing its trade flow into Europe. To this end, it is expected to become a signatory to the TIR Convention, an international treaty governing the transportation of freight by road across all of its 70 member countries. Any such move would inevitably boost the level of deliveries by truck in Northeastern China, Russia's Far East and Eastern Siberia.
Any improvements in road or rail freight connectivity and competitiveness, however, will need to be matched by increased efficiency and reduced processing time when it comes to customs procedures. To this end, the Eurasian Economic Commission has announced plans for a unified transit document, ultimately removing the need for national customs declarations. The proposed documentation is currently being trialled on a number of China-Europe cargo routes.
Leonid Orlov, Moscow Consultant