TRADE, TRANSPORT AND TELECOMMUNICATIONS IN THE SOUTH CAUCASUS: CURRENT OBSTACLES TO REGIONAL COOPERATION

Executive Summary

Nearly a year ago, in the context of growing hopes for a peace settlement in Nagorno-Karabakh, the World Bank commissioned a series of studies of transport, trade and telecommunications infra-structure in the three South Caucasus states. The six studies looked at current issues and future prospects in the region for trade flows, trade facilitation, roads, railroads, telecommunications and tourism

The basic premise of these studies is that for the region as a whole, the major economic benefit from a peace settlement will come from the benefits of trade. The re-opening of borders would permit normal trade between the three countries and with their immediate neighbors: Turkey, Russia and Iran. This, in turn, would enable Armenia, Azerbaijan and Georgia to use their advantageous geographic position, natural resources and human capital to reach new markets and expand exports. This would stimulate increased foreign investment, rapid economic growth, job creation and poverty alleviation.

The purpose of the studies is to consider the steps needed to achieve this “virtuous cycle” of border openings leading to increased trade and prosperity. What investments and activities can donors and governments undertake to transform this vision into a reality? Should we wait for a peace treaty before tackling these problems or can we do anything now? And can problems be solved by individual countries, or do they require a regional approach?

A common theme emerging from these six studies is that closed borders, blockades, and war-damaged infrastructure provide only a partial explanation for the dramatic drop in exports of the three countries. Even in areas where no serious political obstacles to commerce exist, there are institutional, bureaucratic and structural barriers to trade that will need to be lifted, before trade will expand and the countries can reap any substantial economic benefits from a re-opening of borders. To quote Trade Facilitation in the Caucasus: “In the long run a peace settlement will only generate widespread and sustainable benefits, if the institutional and physical milieu is sufficiently supportive. The realization of these potential benefits appears highly unlikely, at present, as the current institutional and physical milieu is anything but supportive and offers few incentives for new development.”

It is worth emphasizing that if these problems are not dealt with before a peace settlement is reached, the likelihood of the populations of the three countries deriving visible economic benefits from an agreement – and continuing to support whatever political tradeoffs are necessary for peace – is far smaller. For this reason, this paper falls into the category of post-conflict work.

This summary paper provides a synthesis of some of the key insights and recommendations of the six studies, but concentrates on those that can be implemented under the current circumstances, i.e. without a peace accord. The full studies provide a much larger range of recommendations than those summarized in this paper and include proposals for investments and projects in the event of a peace agreement. The papers are entitled “Changing Trade Patterns after Conflict Resolution in South Caucasus” “Trade Facilitation in the Caucasus” “Armenia and Azerbaijan: Post-Conflict Study – Road Transport” “Post Conflict Study of Railways in Armenia, Azerbaijan, Georgia and Turkey” “Regional Study on Telecommunications in the Caucasus” and “Regional Study on Community-Based Tourism in the Caucasus.” All six studies, along with summaries and terms of reference are available on the World Bank Internet site under “South Caucasus Regional Cooperation.” This paper is narrowly focused on current barriers to trade, transport and tele-communications in the region. It does not deal with political issues, nor with the underlying structural problems that underpin poor export performance, i.e. barriers to investment and production, weak marketing and financial systems, etc. Our purpose here is to answer a much more limited set of questions:

· What are the current key obstacles to trade, transport and telecommunications in the region?
· Which of these obstacles can be tackled under current conditions, and how can they best be tackled?
We are looking, in particular, at telecommunications and internet development in the region, not merely for its intrinsic contribution to economic development, but because it offers a new vehicle for facilitating economic cooperation and interaction between individuals, businesses and governments, despite political barriers. In addition, the internet can play a critical role in breaking down the geographic isolation all three countries face, and permitting contact with the world beyond their borders.

We are also building on the experience of the Trade and Transport Facilitation in South East Europe Project (TTFSE) where international organizations have been working with public and private sector groups in six neighboring states to achieve significant improvements in trade facilitation in a region where wars, political animosities, and economic collapse have destroyed old trade patterns and stymied the establishment of new ones.

To follow up on these six studies, we intend to co-sponsor a South Caucasus Trade Facilitation Workshop in Tbilisi in June 2001 conference in the region, to outline potential trace facilitation efforts through two main themes: trade and transport facilitation, and regional information infrastructure and e-commerce/e-government.. Our purpose will be to gather stakeholders from the three countries to share information on trade facilitation activities elsewhere, initiate the creation of business-government committees to facilitate trade and transport and begin to develop a Regional Information Infrastructure Strategy.