tepav Economic Policy Research Foundation of Turkey
Integration of SSWA countries: Key issues in rail transport
Yakup Peker
New Delhi, 16 March 2017
Outline Industry is better for inclusive growth
Industry requires collaboration: Look for value chains
Connectivity for industrial development
Increasing connectivity fosters integration
Istanbul– Islamabad Railway: long-time forgetten links
Big picture: Modern Silk Road
Missing links in Trans-Asian Railway Connectivity
A national example (GTI)
Conclusion
Connectivity makes regional integration easy Slide 2
At TEPAV, we care about regional integration & connectivity The Economic Policy Research Foundation of Turkey
A private, nonpartisan, nonprofit “think- and do-tank” devoted to independent research and project implementation
Established in 2004, with the support of the Union of Chambers and Commodity Exchanges of Turkey
now only 30% of the budget is through TOBB
Four programs
Innovation, Macro, Region, Cities
Regional Integration projects
Integration by providing good investment climate
• Special Economic Zones in the West Bank, Yemen and Mauritania
Transport corridor projects
• BALO: Connecting Turkey to Europe
• Istanbul– Islamabad Railway: long-time forgetten links
• Moden Silk Road
Connectivity makes regional integration easy Slide 3
The connectivity matters for the market orientation: The case of inland v. Coastal Turkey
Source: TURKSTAT, TEPAV calculations
Bursa USD 9.8 billion
İstanbul USD 76.2 billion
Kocaeli USD 6.5 billion
Konya USD 1.3 billion
Gaziantep USD 6.4 billion
İzmir USD 8.4 billion Kayseri
USD 1.5 billion
Connectivity makes regional integration easy Slide 4
EU-28 71%
MENA 11%
East Asia 4%
Others 14%
EU-28 51%
MENA 25%
East Asia 4%
Others 20%
EU-28 53%
MENA 18%
East Asia 7%
Others 22%
EU-28 31%
MENA 38%
East Asia 5%
Others 26%
EU-28 27%
MENA 42%
East Asia 6%
Others 25%
EU-28 18%
MENA 56%
East Asia 3%
Others 23%
How would you send your cargo from Istanbul to Karachi or Mumbai? Maritime?
Istanbul
Karachi
Mumbai
Rotterdam
Connectivity makes regional integration easy Slide 5
Istanbul
Karachi
Mumbai
How would you ship your cargo from Istanbul to Karachi or Mumbai? Railway?
Connectivity makes regional integration easy Slide 6
0
1,000
2,000
3,000
4,000
5,000
6,000
0 10 20 30 40 50
Maritime
Railway is fast between coastal areas, fast & cheap between inland areas
Source: Astra Logistics, TCDD, TEPAV Data
Cost
($ /
40 f
t)
Time (day)
0
1,000
2,000
3,000
4,000
5,000
6,000
0 10 20 30
Time(day)
Ankara - Lahore İstanbul - Karachi
Ground
Railway
Ground
Railway
Maritime
Connectivity makes regional integration easy Slide 7
Railway freights are increasing in India, Iran and Turkey
How to integrate more?
0
50
100
150
200
250
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
India
Iran
Pakistan
Bangladesh
Turkey
Railway Freight Index in SSWA Countries
(2000 Level is 100 for each)
50
100
150
200
250
50 60 70 80 90 100 110 120 130 140 150 160 170 180 190 200 210 220 230 240 250 260
South Africa
USA
Romania
World
Russia
Mexico
Bulgaria
Afghanistan
Laos
Saudi Arabia
Argentina
Cyprus
Italy
Croatia
Australia
South Korea
Bhutan
UK
Spain
Brunei Poland
Colombia
Bangladesh
Maldives
India
Vietnam
Thailand
Turkey
Pakistan
Nepal
Sri Lanka
Cambodia
Philippines
Brazil
China
Singapore
Indonesia
Malaysia
Total Export 2015, (2008=100)
Lithuania
Tota
l G
DP 2
015, (2
008=
100)
Latvia
Ireland
Low growth Low export growth
New markets gain importance in the post-crisis world
How to integrate more?
Source: World Development Indicators, TEPAV calculations Note: Myanmar is excluded as an outlier with export index in 2015 as 35027 (2008=100)
Other Emerging
World
G20, others
ASEAN
SSWA
High growth Low export growth
Low growth High export growth
High growth High export growth
Country Groups
Increasing trade volumes within SSWA (1)
How to integrate more?
0%
2%
4%
6%
8%
10%
0
2
4
6
8
10
12
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
4 countries' share in Turkey's total exports (Right axis)China, billion $ (Left axis)Iran, billion $ (Left axis)Pakistan, billion $ (Left axis)India, billion $ (Left axis)
Turkey’s export to India and the countries in the route
Source: UN Comtrade, BACI, TEPAV
calculations
How to integrate more?
Turkey’s import from India and the countries in the route
Source: UN Comtrade, BACI, TEPAV
calculations
0%
5%
10%
15%
20%
0
5
10
15
20
25
30
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
4 countries' share in Turkey's total imports (Right axis)
China, billion $ (Left axis)
Iran, billion $ (Left axis)
Pakistan, billion $ (Left axis)
India, billion $ (Left axis)
Increasing trade volumes within SSWA (2)
Modes of regional integration
European Union
Integration by design
Nation states are bind by acquis communautaire of 700k pages
Independent fiscal and monetary policy euro crisis
ASEAN
Integration by interaction
Private-sector driven integration, joining international supply chains is the key
No higher level political project, policy reforms in each country enable integration
South and Southeast Asia (SSWA)
Integration?
Fragmented efforts so far: ECO, SAARCH, APTA
Post-financial crisis opportunity?
Connectivity makes regional integration easy Slide 12
Different modes of integration, different levels of convergence
Source: World Development Indicators
Connectivity makes regional integration easy Slide 13
Luxembourg 101.4
Ireland 61.1
Netherlands 44.3
Austria 43.8
Finland 42.3
Germany 41.3
Belgium 40.3
France 36.2
Italy 30.0
Spain 25.8
Cyprus 23.2
Malta 22.6
Slovenia 20.7
Portugal 19.2
Greece 18.0
Estonia 17.1
Slovakia 16.1
Lithuania 14.1
Latvia 13.6
Turkey 9.1
Maldives 8.4
Sri Lanka 3.9
Bhutan 2.7
India 1.6
Pakistan 1.4
Bangladesh 1.2
Nepal 0.7
Afghanistan 0.6
Iran -
Singapore 52.9
Brunei 30.6
Malaysia 9.8
Thailand 5.8
Indonesia 3.3
Philippines 2.9
Vietnam 2.1
Laos 1.8
Myanmar 1.2
Cambodia 1.2
GDP per capita of Eurozone (current thousand USD)
GDP per capita of ASEAN (current thousand USD)
GDP per capita of SSWA (current thousand USD)
SSWA is the least integrated among these experiences with different modes
Share of manufactured inputs that are provided from the region countries in regions total
manufactured inputs import (%)
Source: BACI Database, UNCTAD TEPAV Calculations
Connectivity makes regional integration easy Slide 14
0
10
20
30
40
50
60
70
MENA ASEAN EU SSWA
2015 2005 2010 2000
Within SSWA, India & Turkey diverge with their manufacturing sophistication
Export sophistication (Economic Complexity Score) of SSWA countries, 1995-2014
Normalized between 0 and 100
Connectivity makes regional integration easy Slide 15
Bangladesh
India
Iran
Pakistan
Sri Lanka
Turkey
5
15
25
35
45
55
65
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Source: Harvard Atlas of Economic Complexity TEPAV Calculations
Mo
re s
op
his
tic
ate
d e
xp
ort
ers
Turkey and India also diverge in the manufacturing exports performance (1/2)
Manufacturing exports in MENA, CIS, and SSWA regions, 1996
(bubble size = volume of exports)
Connectivity makes regional integration easy Slide 16
0
5
10
15
20
25
30
35
40
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Share of manufacturing in country’s total exports (%)
Algeria Pakistan
Turkey
Kuwait Kyrgyzstan Nepal
Russia
Saudi Arabia
Moldova
Tunisia Kazakstan
Oman Morocco Qatar Bahrain Egypt
Ukraine
Yemen Georgia
India
Israel
Co
un
try’s
sh
are
in
to
tal m
an
ufa
ctu
rin
g e
xp
ort
s
of th
e r
eg
ion
(%
)
Source: UN Comtrade, WB, TEPAV calculations
Turkey and India also diverge in the manufacturing exports performance (2/2)
Manufacturing exports in MENA, CIS, and SSWA regions, 2015
(bubble size = volume of exports)
Connectivity makes regional integration easy Slide 17
0
5
10
15
20
25
30
35
40
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Egypt Kazakstan Algeria
Israel
India
Georgia Kyrgyzstan
Bahrain Kuwait Pakistan Oman
Turkey
Morocco
Moldova Nepal Yemen Tunisia
Qatar
Ukraine
Russia
Saudi Arabia
Share of manufacturing in country’s total exports (%)
Co
un
try’s
sh
are
in
to
tal m
an
ufa
ctu
rin
g e
xp
ort
s
of th
e r
eg
ion
(%
)
Source: UN Comtrade, WB, TEPAV calculations
Traditional shipping connectivity does not help intra-regional integration (India & Turkey are at EU levels)
UNCTAD Liner Shipping Connectivity Index for SSWA countries and EU
Connectivity makes regional integration easy Slide 18
0
10
20
30
40
50
60
70
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Bangladesh
Turkey
India
Maldives
Pakistan
Sri Lanka
Iran (Islamic Republic of)
EU Average
Source: UNCTAD
What are the problems in border crossing by rail transport?
Hard connectivity
Gauge breaks
Soft connectivity
Procedures
Lack of standardization & harmonization
Incompatible systems
How to integrate more?
UZBEKISTAN
TAJIKISTAN
KYRGYZSTAN
KAZAKHSTAN
TURKMENISTAN
AFGHANISTAN
IRAN
PAKISTAN
TURKEY AZERBAIJAN
ARMENIA
GERORGIA
RUSSIA
INDIA
IRAQ
SYRIA
LEBANON
ISRAEL
SAUDI ARABIA
Tahran
Ankara
Quetta Zahedan
Kerman
Tebriz Malatya Kayseri
Taftan
Esfehan
İstanbul
Islamabad
Connecting Europe/Turkey to the Subcontinent: Istanbul – Tehran - Islamabad Train
Zahedan
Railway conversion Taftan
Customs
Kapıköy
Customs
Van Lake
Ferry
Taftan – Quetta
Old rails
Connectivity makes regional integration easy Slide 20
ANKARA SİVAS
MALATYA
ELAZIĞ
TATVAN
KAPIKÖY
ZANJAN
YAZD
KERMAN
MİRJAVEH TAFTAN
QUETTA
LAHORE
0
50
100
150
200
250
300
350
400
0 1000 2000 3000 4000 5000
Tim
e (
ho
ur)
Distance (km)
total wait time: 47 hours
total wait time: 42 hours
total wait time: 6 hours
Time – distance analysis of a test run Ankara – Lahore: ~15 days
PAKISTAN 11,6 km/h
TURKEY 8,6 km/h
IRAN 17,6 km/h 16
14
12
10
8
6
4
2
days
Connectivity makes regional integration easy Slide 21
Big Picture: Modern Silk Road
Connectivity makes regional integration easy Slide 22
İslamabad
Kashgar
Karachi Gwadar
Istanbul
Tahran
America
Europe
«Hard connectivity» issues
How to integrate more?
Infrastructure Scores (LPI, 2016)
Source: World Bank, Doing Business 2017
«Soft connectivity» issues
How to integrate more?
Cost to Export: Documentary Compliance (USD, 2017)
Source: World Bank, Doing Business 2017
Next step: Istanbul-Tehran-Islamabad-Delhi-Kolkata-Dhaka integrated railway corridor
Connectivity makes regional integration easy Slide 25
Customs coordination and standardization is a must for connectivity
26
Coordination in customs and security
Public – private partnerships in gate modernization and management
Integrated Check Points, Single Windows
Opportunity to evaluate each institution in the customs seperately
Conclusion Asian integration model is different from the EU
Regional connectivity is a critical catalyzer
Policy reforms are enablers
Istanbul-Islamabad train could be an opportunity for SSWA countries integration
Access to EU market fast and cheap for SSWA
Alternative way for the landlocked countries
Software connectiviy can solve hard border crossing issues
Establishing a coordination unit for Asia-Pacific countries
A regional transport infrastructure development fund to catalyze cross-border cooperation in provision of finance
Corridor management agencies to ensure coordination between national agencies and regulators
Connectivity makes regional integration easy Slide 28