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Eurasianet

Eurasianet

Eurasianet is an independent news organization that covers news from and about the South Caucasus and Central Asia, providing on-the-ground reporting and critical perspectives on…

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Armenia’s Controversial Dry Port Project Hinges on Foreign Investment

  • Armenia aims to build a dry port to become a transit and trade hub, reducing reliance on Russia.
  • The project faces challenges including securing large foreign investment and navigating a complex geopolitical landscape.
  • Success hinges on attracting trade volume and overcoming geographical limitations.
Armenia

Armenian officials are hoping to mitigate the chill in Yerevan’s relations with Russia by creating a dry port that plugs the country into emerging international trade corridors.

The government plan seeks to transform Armenia into a “transit, transport and export-focused manufacturing hub,” according to a readout from a meeting of the country’s investment committee published earlier this year. The dry port concept rests on the establishment of a free-trade zone, featuring multi-modal air, rail and trucking facilities connected to warehouses and industrial parks.

First announced three years ago, officials are now touting the project as a potential golden goose for the state treasury. For Prime Minister Nikol Pashinyan, the dry port is a pillar of his Crossroads of Peace vision, an ambitious initiative to create a “new reality” in the Caucasus rooted in beneficial trade. Officials have already earmarked $37 million in public funds for the dry port project which will be situated near the city of Gyumri, Armenia’s second largest city and the site of a Russian military base.

For most of the post-Soviet era, Armenians viewed Russia as their protector against two hostile neighbors – Azerbaijan and Turkey. But those views have changed radically since the country’s defeat in the Nagorno-Karabakh conflict; many Armenians feel Russian peacekeepers failed to protect Karabakh’s Armenian civilian population during a refugee crisis in late 2023.

Since then, bilateral ties have soured and Armenian leaders have looked for ways to reduce the country’s economic dependency on Russia. Currently, about 40 percent of Armenia’s exports go to Russia. Meanwhile, the country is almost entirely dependent on Russia for essential imports like grain and fuel.

“The dry port seeks to solve one of the main problems of our country, Armenia’s bad logistic dependency from the world,” the country’s former economic minister, Vahan Kerobyan, told reporters in December. “We’ve found a good way of solving our most painful problem.”

Charle Malas, the man that Yerevan has brought in to head the project, said that, “dry ports are operated the same way as a regular one; they utilize the exact same documentation and infrastructure, just the cargo comes off trucks and rail wagons instead of ships.”

The potential economic benefit is substantial. Kerobyan has said that the port could contribute up to 3 percent of the country’s total GDP and create thousands of jobs. 

However, there are multiple hurdles to clear before the dry port can begin to reap economic benefits, the most challenging of which is financing. Officials acknowledge the project can proceed only if “large foreign investors” are brought in who can help the project meet a high sticker price of $100 million.

The construction timeline also raises questions. The dry port will need five to seven years to become fully operational, according to the government. A lot can happen in the intervening time that can alter the dry port’s viability. For instance, China’s deteriorating relationship with the United States and European Union has the West looking to build new supply chains. Accordingly, East-West trade volume seems set to shrink over the next five years, calling into question whether there will be sufficient trade volume to make the Armenian dry port pay off. The project could turn out to be the golden goose that authorities hope for, or it could become a white elephant like similar developments in Central Asia.

“Politically, it’s an easy sell,” said Shant Karabajak, an expert on urban and regional development. “[But] this is not an ‘if you build it, they will come’ scenario. The market conditions have to be present or forecast for it to make sense.”

To that, people involved with the project say that Gyumri is the best place in Armenia for such a development. “There is a cluster of transportation connectivity in that region,” Malas told the Armenian news site CivilNet. “[A] main railway track that goes on to Tbilisi and then on to the Black Sea, you’ve got good road connections where you’ve got now the North-South road corridor… there’s also an airport.”

Other nodes in trade corridors across Central Asia serve as cautionary tales of overhyped promise. Since its opening in 2015, for example, the Khorgos dry port, which straddles Kazakhstan’s border with China, has not acted as the cash cow that Kazakhstani leaders expected.

In the case of Armenia, a limiting factor could be the exact thing the dry port is designed to overcome – geography. “Personally, I would love to see Armenia thrive as a transit hub, it would be a great return to the nation’s traditional commercial role as facilitators of trade,” Karabajak said. “However, just as it’s been for the last 4,000 years, the geopolitics [is] a major obstacle.”

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Any talk about cash cows and golden geese is moot in the absence of investor interest. China has served as the go-to bankroller of regional infrastructure development over the past decade-plus, but Beijing’s purse strings could be a bit tighter in coming years, as President Xi Jinping’s government struggles to prevent the domestic economy from cratering.

In a statement to Armenpress in early February, the Chinese embassy in Yerevan was non-committal about Pashinyan’s grand infrastructure vision, noting only that Beijing was “[paying] attention.”

By Brawley Benson via Eurasianet.org

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