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Russia’s transit potential: new solutions for developing markets

May 29, 2017, 20:13 UTC+3
1 pages in this article

Russia’s geography is the reason behind its unique transport opportunities. However, the country’s transit potential is in use only to a degree of 5–7%. Unlocking all opportunities requires a comprehensive approach covering the upgrade of the transport infrastructure, enhancement of customs procedures, attraction of major investments and interaction with neighbouring countries.

The expansion of international transit will accelerate Russia’s economic growth and its integration into the global transport system.

  • According to the OECD, the development of transit routes contributes to the efficiency of transport infrastructure, while a 10% increase in productivity leads to 0.8% GDP growth.   
  • In 2016, Russia’s exports of transportation services brought RUB 15 billion, which accounts for over a half of natural gas exports revenues.
  • In 2016, transit transportation in Russia declined to 1.9 million tonnes due to the deterioration of the foreign political and economic relations.

Ultimately, the use of Russia’s transit potential is expected to go up.

  • In particular, the combination of the two transcontinental integration initiatives – Eurasian Economic Union (EAEU) and Silk Road Economic Belt (SREB) – will stimulate infrastructure development.

Russia’s and China’s joint statement on cooperation in this field highlights tighter ties in logistics, transport infrastructure and intermodal carriage.

Currently, the following projects are being implemented or negotiated: international transport route (ITR) Europe – Western China crossing Kazakhstan, Russia and Belorussia, high-speed line Moscow–Beijing, transport corridors Primorye-1 and Primorye-2.

  • At the SCO Summit 2016, Russia, China and Mongolia officially approved the programme to construct an economic corridor between the countries, which involves the development of transport infrastructure and checkpoints.
  • Russia considers the opportunity of creating a free trade zone between Iran and EAEU, with the North-South ITC connecting Iran and Northern Europe as one of its infrastructure elements. 

Another stimulus to boost Russia’s transport potential is to develop online cross-border trade.

  • According to the Association of Internet Trade Companies (AITC), in 2016 the volume of the cross-border market grew by 37% year‑on‑year, and in 2017 it is expected to gain another 30%.
  • Parcel transit shows a high growth rate: in Q1 2017 alone, in major online stores it increased by 40% (East to West routes).
  • At the Sochi International Investment Forum 2016, Russian Post and Russian Railways agreed to launch new post trains to transport parcels from China to Europe.

However, a number of issues requiring a systemic solution hold back further development of Russia’s transit potential. First of all, these are the absence of the necessary infrastructure to boost carrying capacity and a deficit of investment in such projects.

  • According to InfraNews, the minimal required investment in the projects on the border between Russia, Kazakhstan and China total at least USD 2.5 billion, and in the short term it is USD 10–12 billion.
  • Under limited investment opportunities, container terminal development and adjacent railway infrastructure seem to be most viable options.

Second, land transit rates across Russia are higher than sea freight.

  • The development of land transit via Russia requires a decrease in the cost of land freight by at least 25%, and even by up to 50%, according to some estimates.

Third, contradictions between Russian transport regulations and international laws, the need to re-issue documents on the way from one country to another and multiple customs control procedures.

  • The unification of EAEU customs procedures and improvement of Russia’s internal procedures is necessary.
  • Negotiations to launch a green corridor between Russia and the EU and between Russia and Israel are underway. Similar agreements with Iran and Japan have already come into effect.
  • The agreement on mutual acceptance of the customs control results on certain items between Russia, China and Mongolia signed in 2016 should become an instrument to boost transit transportation.
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