Diversifying Trade Flows and Transport Routes in CAREC Region

Presentation on CAREC Study: Diversifying Trade Flows and Transport and Transit Routes in CAREC Region Roman Mogilevskii Regional Cooperation and Integration Unit Central and West Asia Department Asian Development Bank National Focal Points' Meeting 18 October 2023 INTERNAL. This information is accessible to ADB Management and staff. It may be shared outside ADB with appropriate permission.

Introduction This work responds to the requests for analysis of the recent shocks impact on trade and transit in the CAREC region - change in and diversification of trade flows - current situation and alternative transit options Work in progress, final version in 2024 Preliminary version to be presented at the panel session Diversifying Trade Flows and Transport and Transit Routes in CAREC Region at the Ministerial Conference, 2023 Discussants at the session development partners, private sector, governments This PPT will be updated for the MC INTERNAL. This information is accessible to ADB Management and staff. It may be shared outside ADB with appropriate permission.

Increase in Trade in Goods due to Energy Prices Exports of goods In 2022, many economies of the region have recorded all-time high values of merchandise and service exports and imports The growth mostly continues in 2023 Dramatic increase in energy trade driven by growth in international prices (64% increase in 2022) followed by 40% decline in 2023 80% Change to the previous period, % 72% 60% 42% 40% 32% 36% 30% 30% 40% 19% 19% 9% 20% 8% 6% 0% -3% -3% -20% -10% -19% -21% -40% -53% -60% Azerbaijan PRC Georgia Kazakhstan Kyrgyz Republic Mongolia Pakistan Tajikistan Uzbekistan 2022 6m2023 Imports of goods 80% Change to the previous period, % 73% 60% 33% 33% 34% 40% 29% 27% 23% 24% 21% 18% 19% 19% 15% 20% 8% 1% 0% -2% -7% -20% -39% -40% Azerbaijan PRC Georgia Kazakhstan Kyrgyz Republic Mongolia Pakistan Tajikistan Uzbekistan 2022 6m2023 INTERNAL. This information is accessible to ADB Management and staff. It may be shared outside ADB with appropriate permission.

and exports to the Russian Federation Major increase in exports to and imports (mostly energy) from Russia Growth in exports due to voluntary departure of international companies from the Russian market and sanctions emergence of associated market opportunities, especially for CCA economies Declining imports of machinery and equipment from Russia Exports to Russia Imports from Russia 80% 150% Change to the previous period, % Change to the previous period, % 79% 146% 125% 60% 92% 45% 100% 78% 40% 34% 75% 32% 59% 31% 27% 24% 24% 54% 40% 19% 19% 50% 20% 25% 34% 22% 13% 8% 16% 25% 13% 9% 6% 7% 0% 0% -1% -17% -9% -9% -25% -20% Azerbaijan PRC Georgia Kazakhstan Kyrgyz Republic Mongolia Tajikistan Uzbekistan Azerbaijan PRC Georgia Kazakhstan Kyrgyz Republic Mongolia Tajikistan Uzbekistan 2022 6m2023 2022 6m2023 INTERNAL. This information is accessible to ADB Management and staff. It may be shared outside ADB with appropriate permission.

Components of export growth Export creation, export destruction and re-exports to Russia Main beneficiaries Kazakhstan, Kyrgyz Republic and Uzbekistan Export creation in traditional (re)export sectors, but also in relatively new ones, e.g., cars from Kazakhstan Export destruction driven by sanctions on Russian counterparts Export destruction by type of product, CCA, 2022-6m2023 Export creation by type of product, CCA, 2022-6m2023 Change in exports to Russia, 2022-6m2023 8 Light indistry products 7% 7 Other 11% Agrifood products 11% Machinery and equipment 1% 6 5 Billion USD 4 Light indistry products 6% Other 2% 3 2 Metals and ores 33% 1 Agrifood products 8% Metals and ores 83% 0 Machinery and equipment 38% -1 -2 AZE GEO KAZ KGZ TJK UZB CCA Export creation Export destruction Re-exports Other INTERNAL. This information is accessible to ADB Management and staff. It may be shared outside ADB with appropriate permission.

Re-exports Re-exports to Russia are very big and increasing, both reported and implicit The same main actors Key re-exported products machinery and equipment, textiles Re-exports, not export creation, dominate in the response to the market opportunity the growth of exports is limited by supply, not demand Re-exports vs. export creation, 2022-6m2023 Re-exports by type of product, CCA, 2022- 6m2023 Re-exports to Russia, 2022-6m2023 50 45 45 Re-exports based on reported EU exports to CCA Chemicals and plastics 6% 40 40 35 Light indistry products 29% 35 30 Re-exports based on reported CHN exports to CCA Billion USD 30 Billion USD Other 12% 25 Net export creation 25 20 Total re-exports 20 Re-exports based on reported CCA imports Agrifood products 4% Metals and ores 6% 15 15 Machinery and equipment 43% 10 10 Re-exports based on reported CCA exports 5 5 0 0 AZE GEO KAZ KGZ TJK UZB CCA AZE GEO KAZ KGZ TJK UZB CCA INTERNAL. This information is accessible to ADB Management and staff. It may be shared outside ADB with appropriate permission.

Transit routes revisited The conflict and sanctions created multiple risks for CCA transit routes via Russia Two types of transit: (i) from PRC to Europe and (ii) from Central Asia to Europe and elsewhere The former type of transit has a robust alternative (sea shipments are back to normal after the COVID-19 pandemic); the latter type of transit has fewer alternatives Middle Corridor development as a possible response Challenges for Middle Corridor: infrastructure, logistics, climate change ADB study on transit flows in the region: how these are changing and what are the infrastructure development drivers and impediments on the example of Aktau port Converting all new CAREC corridor development in into economic corridors attracting private investments in agribusiness, tourism, transport connectivity etc. Need in Middle Corridor development strategy INTERNAL. This information is accessible to ADB Management and staff. It may be shared outside ADB with appropriate permission.

Summary Dramatic growth of CAREC economies foreign trade in 2022 first half of 2023 due to the conflict in Ukraine and post-pandemic recovery The conflicts in the region caused supply chain disruptions but also created (short- term?) trade opportunities for the economies in the Caucasus and Central Asia Hike in re-exports, not trade creation, was the main response to these opportunities Long-term growth fundamentals the ability to access foreign markets, access to advanced technologies, jobs for labor migrants etc. have been questioned CAREC economies and development partners are now looking into the alternative options for transit of their critical exports and imports How enhanced regional cooperation through CAREC can help in responding to these challenges? INTERNAL. This information is accessible to ADB Management and staff. It may be shared outside ADB with appropriate permission.