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“International Transport Corridors in the OIC Member Countries”

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“International Transport Corridors in the OIC Member Countries” A STUDY OF INTERNATIONAL TRANSPORT CORRIDORS IN OIC MEMBER COUNTRIES Prepared by September 2011 This publication was commissioned and funded by the Islamic Development Bank. PGlobal Global Advisory and Training Services This report has been prepared by “PGlobal Global Advisory and Training Services” upon the request of Islamic Development Bank (IDB) in 2011. Please see the “Disclaimer” section for further explanation. Preface Pre face The Study on Transport Corridors in OIC Member Countries is an assessment of the role and importance of transport corridors (TC) in contributing to economic growth and cooperation, trade and regional integration with a view to identify a policy framework among the 57 OIC member countries. It has conducted in order to present and to discuss prioritization of transport corridors passing through in OIC Member Countries in an international workshop in Izmir, attended by delegates from 21 OIC member countries and 11 international institutions. This exercise aims to identify priority TC and challenges together with policy formulation. In a more globalized and integrated world, TCs are commanding attention and gaining importance, particularly in developing economies and emerging markets, because of their role in economic development and trade facilitation. The report begin with examining potential trade movement among the countries by identifying the comparative advantage of each country adjacent to the relevant TCs, as well as the existing trade flow patterns and utilization level of those corridors. The report, therefore, aims to heavily underscore the need for efficient international TCs among the OIC member countries, as well as propose a set of priority TCs that deserve attention and inclusion in the political and development agenda of member countries and international organizations. Given existing trade movements patterns and TCs, this report identifies the physical and non- physical barriers to trade that impede the smooth flow of cargo among OIC member countries for both intra-regional and for transit trade. Moreover, the topics such as traffic flow, freight costs, transport costs, road pricing, and congestion in each specific region are also analyzed. The report employs data, outcomes, and expertise from various sources, including international organizations such as WB, IMF, WTO, IRU, etc, and also other TC projects undertaken by different international bodies and initiatives such as TRACECA, EALT, NELTI, CAREC etc. Therefore, it provides the reader with a strong rationale of how economic development and integration could be achieved through development of TCs to facilitate movement of goods and people among the member countries. Essentially, it will pave the way for establishing a strategy for development and cooperation in the regions, as well as for promoting specific corridors and identifying obstacles to smooth transport flow. Page i Preface This report also examines in detail the trade and transport / transit facilitation agreements among the OIC member states. In addition, it provides a thorough analysis for policy formulation regarding these agreements, based on the recommendations that different international organizations have made. It thus aims to align the demand for trade and transport facilitation with the policies of different international and regional organizations on the matter. Some recommendations and policy formulation guidelines are provided for optimal use of these facilitation agreements. The last part of the report (Chapter 5) presents the prioritization of transport corridors for the three regions. A prioritization matrix has been developed that includes relevant criteria such as involvement of OIC member states, potential regional trade, potential interregional trade, missing links, transport costs, non-physical barriers. This prioritization exercise does not and should not constitute as such the rationale for financing any part of the identified TCs. It is expected that this study is used as a reference guide for governments and financing institutions in order to conduct comprehensive approaches to analyze socio-economic feasibility of specific corridors, or part of corridors, as part of their due diligence and decision-making processes. However this prioritization exercise should not be used to undermine the importance of any corridor for specific countries or region. It simply provides an attempt to identify a list of corridors that are important for achieving a higher level of economic development, cooperation and integration among OIC member countries. While this study was commissioned and financed by IDB, the knowledge generated in this study is intended for all relevant national, regional and international parties (countries, organizations and financing institutions) that are actually involved in development of transport as a means to economic growth, development and integration. Page ii Executive Summary Executive Summary Transport corridor definition and impact A transport corridor is physically defined as a combination of routes that connect centers of economic activity across one or more adjoining countries, each route being composed of links over which transport services travels and nodes that interconnect the transport services. The end points are gateways that connect the economic centers to the hinterland or to the global trade routes. Transport corridors are of significant developmental importance because they promote trade among cities and countries along the corridor, support regional economic growth and enhance regional integration. From an economic perspective, their function is to promote internal and external trade by providing more efficient and effective transport and logistics services. As such they can be categorized into three categories: foreign trade corridors, which are used for imports and exports, domestic trade corridors, that are used to distribute goods within the country, or transit trade corridors, which are used to transport cargo of other countries. Because of their economic importance, which goes far beyond the mere impact of transport infrastructure, the development of transport corridors has been high in the priority of nations, with various development strategies ranging from working on interconnections and interoperability to increasing route capacity or market access. In most cases, priority is given to the critical performance at border crossings and international gateways, and TC initiatives have been more successful where supported by existing customs unions or preferential trade agreements. The main contribution of transport corridors to economic growth is subsequent to the reduction of logistics costs and transportation time along supply chains, which eventually help improve trade competitiveness. However experience demonstrates that not all TC initiatives are successful and their success is much dependent upon the existence of proper corridor management mechanisms and trade and transport facilitation initiatives. Transport corridor initiatives in OIC member states OIC has 57 member countries that had a combined GDP at PPP of US$ 7,740 billion in 2008. The member countries exhibit high levels of heterogeneity and divergence in their economic structure, performance, and income. The OIC countries are well-endowed with potential economic resources, especially in the fields of agriculture, land, energy and mining, and human resources, and they form a large strategic trade region that we can subdivide into three regional groups: Sub- Saharan African countries, Asian countries and MENA countries. Page iii Executive Summary The OIC member states and, more specifically, the three different regions under consideration— Asia, the Middle East and North Africa, and Sub-Saharan Africa—face different challenges in developing transport corridors. These corridors will in turn have different levels of impact on the economic growth of the various countries. These differences are mainly due to a diverse topology and geography, as well as the fact that regional history and trade development have generated different strategic objectives and reasons for developing transport corridors in each region. In Asia for example, the 46 TC initiatives identified emanate from regional organizations such as CAREC, ECO, UNESCAP, Eurasec ,IRU, etc. Some of the chief objectives of these initiatives are to open-up the trade potential of the many landlocked Central Asian countries, promote intra-trade along main corridors, as well as leverage on the important trade of manufacturing goods between Asia and Europe to develop Euro-Asian land transport routes. Trade between Asia and Europe rises dramatically every year, and the ambition to revive the Silk road routes is more and more strategic given among others the natural constraints facing shipping sector. As for MENA region, there is actually no landlocked country so transport corridors are mainly promoted as tools to enhance regional integration and trade cooperation, which are yet at record low levels from an international perspective. Intra-trade is still very low in the region as it accounts for less than 10% of total trade, and the resource-rich MENA countries are widely perceived to be trading significantly less than would be expected given their economic, cultural and geographical characteristics. Several initiatives to promote integrated land transport networks have been initiated by UNESCWA and League of Arab States and 35 such road or rail transport corridors have been identified in this
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