James Chen: Effects of the Belt and Road Initiative on the Southern Caucasus
The Southern Caucasus region is often neglected in historical studies due to its relative unimportance compared to the regions surrounding it. From antiquity to the modern-day, the South Caucasus existed under the shadow of great empires, from Rome and the Sassanids, to the Byzantine and the Islamic Caliphates, the Ottoman, Russian, and Safavid Empires competed against each other in the early modern period, then in the 20th century, the Soviet Union ruled the South Caucasus. This trend continues to this day as historians prefer to study the nearby empires and their marks on world history. Even though the South Caucasus are out of the spotlight, it should not be ignored, especially in today’s geopolitical climate.
The South Caucasus nations Armenia, Azerbaijan, and Georgia became independent from the former Soviet Union in the early 1990s. Freed from the Soviet bloc, the South Caucasus can now engage in a wider world stage. As a result of its premier geographic location between Russia, the Middle East, Turkey, and Iran; as well as easy access to other regions such as the Mediterranean. In the center of so many regions, South Caucasus’s potential in world trade has not yet been fully realized. Out of the three Caucasian states, Azerbaijan in particular enjoys the greatest cache of natural resources. Azerbaijan exported $19.6 Billion worth of goods in 2019 to the outside world, compared to Armenia’s $2.6 Billion, and Georgia’s $3.8 Billion. Natural gas and petroleum exports made up 90% of Azerbaijan’s total export. These exports travel through pipelines to diverse destinations such as Israel, Italy, Albania, and Turkey. The connectivity between the South Caucasus and its neighbors can still be improved drastically: Iran is isolated from the world at large with some trade between it and the South Caucasus, and Armenia does not wish to open its borders to cross-borders developments from distrust of foreign influence. Based on these data, it is clear Armenia and Georgia in particular could benefit from closer interactions with the outside world to acquire both capital and a market for their goods.
Western powers like the USA and the EU have invested in the South Caucasus in the 1990s when the neighboring regions were in disarray. But in today’s world, the influence and interest western nations have in the South Caucasus is increasingly coming into question. The USA under President Trump and Biden both indicated a shift in US foreign policy. President Trump announced the withdrawal from Afghanistan, which is being completed under President Biden’s administration. Additionally, President Biden also announced the withdrawal of some troops in Iraq, while reclassifying the remaining troops from combat to other purposes. The diminishing NATO military presence in the Middle East makes the South Caucasus of less importance to the west militarily. Economically, the west is still one of the major capital investors to the region, illustrating the ever-present importance of western nations in the South Caucasus that are an important part of South Caucasian economies.
On the flip side of the west-south Caucasian relations, Armenia and Azerbaijan both do not trust the west. Interestingly enough, for the same reasons. Armenia feels the west were not doing their part to resolve the Nagorno-Karabakh conflict between it and Azerbaijan. Covertly, Azerbaijan felt the west’s decisions were biased against Azerbaijan due to the significant Armenian minority in the United States and the west’s previous condemnations of the Azerbaijan regime made Azerbaijan not interested in extensive dialogue with the west.
Russia is the nearest superpower to the South Caucasus and most able and willing to projects its power onto the three nations there. All of the nations are unwilling to wholly trust the Russians so soon after the fall of the Soviet Union, especially Georgia after losing parts of its territory of Abkhazia and South Ossetia to separatist movements heavily supported by Russia. The complicated history between Russia and the South Caucasus nations rules it out as a major partner that can please all three nations.
Looking past the neighboring regions, the South Caucasus now looks to the East. China under President Xi Jinping has pursued an expansive view of the world. The new Chinese “One belt, one road” (BRI) program was unveiled in 2013. The project aims to improve global trade networks especially in developing nations modeled after the original Silk Road of ancient times. To improve the trade networks, the BRI focuses on building infrastructure, coordinating trade policy, and facilitate Chinese investments abroad. The ultimate goal of BRI is to grow Chinese clout in these regions and promote the RMB as another potential global currency against the USD.
The South Caucasus nations see China as a counterbalance to Russia’s close power in the Caucasus. Armenia, Azerbaijan, and Georgia are part of the China-Central Asia-West Asia Economic Corridor of the BRI that connects China to Europe. This corridor coincides with the local Baku-Tbilisi-Kars railway development. Thanks to these projects, a train from Xi’an, China reached Prague in just 18 days. The speedy success of this trial is encouraging and hopefully will lead to more infrastructure plans involving the South Caucasus in the future. In connecting the world, the current effect of global integration can be even more far-reaching and rewarding for all. As part of this network between China and Europe, the South Caucasus stands to gain economically. It improves the accessibility to the entire world for the South Caucasus, since shipping goods to Europe can then easily transfer to the Americas, and goods arriving in China can easily reach Asia and Eastern Africa through the abundant sea routes. When the accessibility to other markets becomes easier, it allows for more profitable opportunities to arise, thereby boosting productivity and GDP. Opening these new markets will be a great boon for all South Caucasian nations.
In the recent visit by President Aliyev to China, China and Azerbaijan agreed on a mutual partnership to develop projects in Azerbaijan. Currently, the two projects that are part of the BRI are the Baku-Tbilisi Rail which is completed, and the Trans Anatolian Natural Gas Pipeline that is still under construction and on track to finish by 2035. These new developments will help Azerbaijani exports reach the world markets faster and in greater numbers, which will, in turn, bring in more capital that can improve the nation’s economy domestically. The Chartered Institute of Building(CIOB) predicts Azerbaijan’s GDP will grow by $4.6 Billion by 2040 from the effects of the BRI.
Armenia differs from Azerbaijan and Georgia as part of the Russian-led Eurasian Economic Union(EAEU). Favorable access to the EAEU markets is important to Armenia’s export economy. Although Armenia is part of the BRI community, its territory does not contain any planned BRI routes. Armenia can still benefit from the improved infrastructure when its exports leave the nation. The World Bank estimates that the shipping time of Armenian exports will decrease by around 2%, while the export-weighted trade costs decrease by 1%. China is rising as one of Armenia’s top trade partners in recent years, jumping from 0.5% of all total trade in 2008 to 10.4% in 2018. This makes the connection to China’s markets and the BRI connection valuable to the Armenian economy. Armenia is partnering with Georgia, Iran, and India to create a North-South corridor that can reduce the trade time between India and the EAEU including Armenia by as much as 50%, and reduce the cost of trade by 30%.
Currently, Georgia serves as the most versatile trade hub in the South Caucasus. It is a long time partner of the west, to the extent of signing an association agreement with the EU. It is also the only South Caucasus country with a free trade agreement with China. The pre-existing connection to the west and the east while positioned in the advantageous South Caucasus region makes Georgia the premier trade and transport hub for global trade in the region. The Georgian government is working to promote access to the Black Sea to compete with Turkish ports. In the current climate where the tension between the West and Turkey are somewhat regular, the completed Georgian ports will be attractive to western shipping. The western connection fostered by Georgia encourages Chinese investors to invest and access its markets. The Hualing Corporation established a free industrialized zone to process transiting Chinese goods.
The 2007 report by the World Bank, reports that the South Caucasian economies are progressing greatly. Georgia and Armenia reduced poverty to 20%, while Azerbaijan was even more successful, bringing its poverty rate down to 10%. Regrettably, the pace of progress had slowed in the South Caucasus: some citizens are susceptible to impoverishment after escaping poverty, and others suffer from the lack of local infrastructure to access markets to sell their goods on a higher level. As local and foreign-driven developments continue in the region, the economic integration will continue and benefit the lower class citizens by bringing new opportunities and capital.
The BRI and other developments can potentially bring the South Caucasus region closer together in the future by easing access and transportation between each nation and to the outside markets. In the future, hopefully, peace and prosperity will become the common traits of all South Caucasus nations.
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