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The Trans-Caspian International Transport Route in the face of New Danger

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The recent skirmishes along the border of Armenia and Azerbaijan pose significant threats to the development of East-West trade and transport corridor.

On July 12, another military confrontation sparked between Armenia and Azerbaijan. This time, the parties of the three-decades-old conflict over occupied territories of Azerbaijan by Armenian Armed Forces fought along international state border on the site of Tovuz region and Nakhchivan Autonomous Republic of Azerbaijan, not the “Line of Contact” around the Nagorno-Karabakh region. Fitful skirmishes involved artillery fire and aerial drones which is sufficient enough to characterize it as the most severe incident since the “April War” in 2016. According to the Ministry of Defense of Azerbaijan, 12 Azerbaijani servicemen and 1 civilian died including a major-general and a colonel while the Armenian Ministry of Defense reported that their number of deaths constituted for 5, which is surprisingly low considering the tense of confrontation.

The both sides immediately accused each other of initiating the fire. However, taking into consideration potential drawbacks of the armed clashes to international projects due to close proximity of strategic facilities to the border area, it is crystal-clear that escalation of military engagement fails to represent any interests of Azerbaijan, unlike Armenia which does not carry much responsibility as it is out of main regional connectivity projects in South Caucasus. More particularly, in accordance with goals embodied on “Strategic Road Map for the development of logistics and trade” approved in 2016, stability and security around the respective state border is of vital importance for Azerbaijan which, on the other hand, fills a gap of Armenia’s leading motive in choosing this place for new skirmishes. Namely, the last stop of Baku-Tbilisi-Kars railway in Azerbaijan before it arrives at Rustavi station in Georgia is the Aghstafa station that is situated within approximately 33-45 km away from Dondar Qushchu and Kokhanabi villages of Tovuz region where Armenian Armed Forces were shelling along the border. In addition, the distance between the Baku-Alat-Qazakh-Georgia Highway and another suffering villages such as Ashagi Qushchu and Aghdam is more or less 4-5 km.

The recent developments in the East-West trade as a driving factor behind the clashes.

It is essential to lay an emphasis on the coincidence of clashes with the latest events occurred on the Trans-Caspian International Transport Route (TITR) in order to draw correlation. Azerbaijan, as one of originators of the TITR along with Kazakhstan and Georgia, gradually advances its connectivity role thanks to the efficient use of Baku-Tbilisi-Kars railway as well as Baku Alat Port. Recently, the TITR achieved a new freight transportation record in compliance with its2020 development plan on cargo tariffs, delivery time and volume of container traffic according to the report of Azernews. Citing to the press service of Trans-Caspian International Transport Consortium on July 15, Azernews informs that shuttle trains consisting of 47 containers arrivedin Istanbul from Xi’anin 16 days, 3 days earlier than the relevant time of the last year due to further harmonization and electrification of the Baku-Tbilisi-Kars railway line.

In addition, the Azerbaijan Railways CJSC confirmed to Trend News Agency on July 16 that between January and May 2020, there were 149,137 tons of cargo delivered via the Baku-Tbilisi-Kars railway, which was 3.9 times higher compared to the same period of 2019.Such improvement was also noticeable on the Global Competitiveness Report 2019 of the World Bank Group where Azerbaijan was ranked the 11th among 141 countries in the category of “Efficiency of train services”. It is important to note that the BTK has yet reached its maximum operational capacity as it is expected to carry 3-5 tons by the end of 2020 and up to 17 tons of cargo and 3 million passengers by 2023.

Furthermore, in early July, there was a meeting held among presidents of three countries– Azerbaijan, Afghanistan and Turkmenistan to discuss cooperation on the integration of Lapis-Lazuli Transport Corridor to the TITR which connects landlocked Afghanistan with Europe. As soon as the BTK railway was linked to the Lapis-Lazuli route in 2018, products from Afghanistan began to flow through Turkmenistan to Azerbaijan and further to the west. In particular regards to the volume of containers throughout the first half of 2020, President Aliyev stated that 55,500 tons of cargo were shipped through Azerbaijan towards Afghanistan and back during the specified time.

A frequent use of pro-war rhetoric entails a direct threat to Azerbaijan’s strategic facilities onthe TITR.

It is no secret that positive resonance of Azerbaijan’s participation in transnational projects makes Armenian government concerned about the change of balance of power in Armenia-Azerbaijan conflict. Such anxiety was also explicitly stated by the former leader of Armenia, Serzh Sargsyan on his interview to Armenia TV when he noted that Armenia had to purchase Russian-made 9K720 Iskander-M ballistic missile with nuclear warheads with a caliber of striking any facilities within 300 miles (500 km) in order to balance the situation with Azerbaijan. Commenting on the demonstration of ballistic missiles during a military parade in Yerevan, Head of the Operational Department at the Armenian army’s General Staff, Major-General Artak Davtian revealed that Armenia’s missile systems were in the capability of targeting “all strategic facilities in Azerbaijan”.

On one hand, it is reasonable to have such a concern. Because in marked contrast to Armenia where political and economic unrest sprawled all around the country and a real “game of thrones” arises for the current government, Azerbaijan seems to be more equipped with opportunities for fast recovery during the post-pandemic period owing to a potential rise of the volume of international trade and transportation. According  to president of Kazakhstan Temir Zholy (KTZ), Askar Mamin, Azerbaijan can gain a net profit of US$600-700 million from transit route alone, while net profit of all member states is worth US$1 billion. The corridor also improves trade turnover of Azerbaijan with several countries along the route, especially China. Shahin Mustafayev, Minister of Economy of Azerbaijan confirmed on his interview to Global Times that the trade turnover between Azerbaijan and China reached US$1.7 billion from January to September in 2019, a rise of 96 percent compared to the same period of 2018.

In conjunction with such hostilities being conducted at regular intervals along the “Line of Contact” and state border, Armenian leadership also actively takes advantage of the pro-war rhetoric in a bid to discredit Azerbaijan’s competitiveness and create a notion of its insecurity. During the flare up along the border, Davit Tonoyan, Defense Minister of Armenia confirmed to Shushan Stepanyan, spokesperson of the relevant ministry “personal and command of the Armenian Army are instructed to be restrained for time to seize new advantageous positions in case of provocations received by the enemy on the borders of the Republic of Armenia.” Another aggressive and provocative statement of Minister was received in the gathering of Armenian community members in last March in New York. At the meeting, Tonoyan announced his dream for “new territories in the event of a new war” and promised that the option of return of “territories for peace” (regarding the occupied territories of Azerbaijan) would no longer be on the table.

Furthermore, some threats of Armenian leadership with a risk of more catastrophic consequences also targets to destabilize the region. In this regard, the statement of the “Defense Minister” of self-proclaimed Nagorno-Karabakh Republic, Levon Mnatsakanyan may serve an example. On 24 July 2018, Mnatsakanyan noted in a press conference that oil and gas installations as well as Mingachevir hydroelectric station of Azerbaijan, the largest dam in South Caucasus was included in tactical plans of the “Defense Army” of the self-proclaimed Nagorno-Karabakh Republic. Besides, some direct threats have already been put into force too. For example, when MP Hrant Bagratyan, ex-Prime Minister of Armenia said in his press conference on 29 April 2016that Armenia had to create its atomic weapons to fight against Azerbaijan and Turkey, very few people would believe that his words had actually incapsulated the partial truth until an unexploded 122-millimeter ordnance consisting of chemical code of white phosphorus was used against civilian population of Askipara village of Tartar region of Azerbaijan on 27 July 2016.

Conclusion

All aspects stated above lead us to some inferences regarding correlation between recent skirmishes and regional development and security in South Caucasus. Firstly, it reveals an obvious clarification that Azerbaijan as a promising contributor to the East-West transport corridor cannot be an interested party in escalation of military confrontation along the border as it constitutes an impediment to Azerbaijan’s strategic goal to become a logistics and trade hub not to mention further political and legal repercussions for the country. This fact generates the second deduction that Armenia, by undermining Azerbaijan’s connectivity role between Asia and Europe tries to keep the power dynamics of Armenia-Azerbaijan conflict balanced which ultimately aims at maintaining the status-quo. Nevertheless, in my opinion, it still requires another investigation to uncover additional motives of the Armenian government in conducting such provocations, especially from the perspective of aggravated domestic situation and its membership in the Collective Security Treaty Organization. The third and the most important takeaway note of this article is that Armenian provocations not only attempt to distract international and domestic community from the ground of Armenia-Azerbaijan conflict by opening another hot zone, but also pose significant risks to the development of regional connectivity projects as well as threaten economic incentives of all countries involved along the TITR due to any attacks on infrastructure facilities of Azerbaijan.

It is no doubt that such clashes stick all efforts of negotiation process of Armenia-Azerbaijan conflict; similarly, keep alive a risk of waging into a full-scale war in such an important region. Therefore, the time has come for international community not only to react Armenian aggression in the same way with other cases of violation of territorial integrity and sovereignty around the world, but also to immediately ensure the peaceful settlement of the conflict based on principles and norms of international law.

Javid Alyarli (@javidalyarli) received an M.A. in China Studies from Zhejiang University in 2019. His current research interests include Belt and Road Initiative, Trans-Caspian International Transport Route, "Digital Silk Road" and Chinese investments in South Caucasus.

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Eastern Europe

As Georgians Fight Each Other, Russia Gleefully Looks On

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Earlier today, the leader of Georgia’s major opposition party – United National Movement (UNM) – was detained at his party headquarters by government security forces, the most recent escalation in a drawn-out political crisis. This could well be the beginning of a new troubled period in the country’s internal dynamics, with repercussions for the country’s foreign policy.

The optics favor the opposition. Images of armed and armored police storming UNM’s headquarters was damaging to the ruling party, Georgian Dream (GD). Western diplomats expressed grave concern over the events and their repercussions. Protests have been called, and will likely be covered closely in Western media.

What comes next, however, is not clear.

Much will depend on what long-term vision for the country the opposition can articulate in the aftermath of the most recent events. It was not that long ago that UNM was declining as a political force in Georgian politics. There is a real opportunity here. But the burden is on the opposition to make a play for the loyalty of voters beyond its circle of already-convinced supporters.

Appealing to ordinary Georgian voters is ultimately the key to resolving the crisis. Beyond the intra-party clashes about the legitimacy of the most recent elections, there is a growing chasm between political elites and the challenges faced by people in their daily lives. And tackling these challenges successfully will not be easy.

Both the ruling party and the opposition have been facing declining support from the public at large. Long-term economic problems, which have been greatly exacerbated by the pandemic, have not been credibly addressed by either side. Instead of solutions, both sides have engaged in political theatrics. For many voters, the current crisis is more about a struggle for political power, rather than about democracy and the economic development of the country. No wonder that most people consider their social and economic human rights to have been violated for decades no matter which party is in power. These attitudes help explain high abstention rates during the most recent election. Despite remarkable successes in the early years after the Rose Revolution, Georgia has lacked a long-term policy for reimagining its fragile economy since its independence and the disastrous conflicts of the 1990s.

None of this, however, should minimize the threats to Georgian struggling democracy. Today’s arrests reinforce a longstanding trend in Georgian politics: the belief that the ruling party always stands above the law. This was the case with Eduard Shevardnadze, Mikheil Saakashvili, and is now the case with the current government. For less politically engaged citizens, plus ça change: Georgian political elites for the last 30 years have all ended up behaving the same way, they say. That kind of cynicism is especially toxic to the establishment of healthy democratic norms.

The crisis also has a broader, regional dimension. The South Caucasus features two small and extremely fragile democracies – Armenia and Georgia. The former took a major hit last year, with its dependence on Moscow growing following Yerevan’s defeat in the Second Karabakh War. Today, Russia is much better positioned to roll back any reformist agenda Armenians may want to enact. Armenia’s current Prime Minister Nikol Pashinyan has been weakened, and easily staged protests are an easy way to keep him in line.

Georgia faces similar challenges. At a time when Washington and Brussels are patching things up after four years of Trump, and the Biden administration vigorously reiterates its support for NATO, Georgia’s woes are a boon for Moscow. Chaos at the top weakens Georgia’s international standing and undermines its hopes for NATO and EU membership. And internal deadlock not only makes Georgia seem like a basket-case but also makes a breakthrough on economic matters ever more unlikely. Without a serious course correction, international attention will inevitably drift away.

At the end of the day, democracy is about a lot more than finding an intra-party consensus or even securing a modus vivendi in a deeply polarized society. It is about moving beyond the push-and-pull of everyday politics and addressing the everyday needs of the people. No party has risen to the occasion yet. Georgia’s NATO and EU aspirations remain a touchstone for Georgian voters, and both parties lay claim to fully representing those aspirations. But only through credibly addressing Georgia’s internal economic problems can these aspirations ever be fully realized. The party that manages to articulate this fact would triumph.

Author’s note: first published in cepa.org

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Eastern Europe

A Fateful Step Towards Annexation

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It’s easy to lose sight of regional developments amid high political drama. The story of Alexei Navalny’s poisoning, flight to Germany, return, and arrest has dominated Russia coverage in the West. Specialists have also been focusing on the struggle over the Nord Stream 2 pipeline, and the fallout of the Nagorno-Karabakh War. Meanwhile, when in November of last year Georgia’s Russian-occupied region of Abkhazia signed a 46-point agreement to create a unified socio-economic space with Moscow, not many took note. While pitched as a move to alleviate the territory’s economic troubles, the program marks a huge step toward eventual annexation of Georgia’s region by Russia.

Multiple new provisions feature in the new document which were absent in the 2014 military agreement. The new pact creates various provisions for the sale of local real estate, among them a stipulation on dual citizenship allowing Russians to get Abkhaz passports. A whole range of laws will be introduced whereby Russian investors will be able to invest money into and buy majority shares in what still remains valuable in Abkhazia.

The latest agreement also proposes allowing the Russians to buy into Abkhazia’s energy sector. Additionally, the Abkhaz will make legislative and administrative amendments according to the Russian law in social, economic, health, and political spheres. There is also a stipulation on simplification of law procedures for Russian investors.

While this may end up giving a shot in the arm to a decrepit Abkhaz economy, the high level of harmonization with Russian laws lays the groundwork for a future merger with Russia. It is this dilemma between closer cooperation with Russia and deep fear of Russian intentions that will haunt the Abkhazian political class for the foreseeable future. Though officially the new “socio-economic” program does not involve a change in Abkhazia’s political status, Abkhaz elites fret they are heading down the path to eventual incorporation into Russia.

Criticism of the pact in Abkhazia forced the region’s leader Aslan Bzhania to forcefully deny that Abkhazia was losing any sovereignty. Instead, he emphasized the positive elements of the document, especially the re-opening of Sukhumi airport. Bzhania also cited Abkhazia’s chronic energy shortages and the acute need for Russian assistance as justification for the deal. Still, fears persist. After all, unlike South Ossetia, the other Russian-occupied region in Georgia, Abkhazia has never entertained the idea of merging with Russia.

But Russia is playing a long game. Pressure on Abkhazia has been building up gradually over the course of 2020. After the resignation of Moscow’s preferred client Raul Khajimba, Bzhania’s candidacy was regarded with suspicion by Kremlin officials. As a result, when he won, Bzhania had to make multiple visits to Moscow to kiss the ring, even as Russian funding continued to dry up amid the pandemic. The cost of resuming aid, it appears, was increasing economic harmonization and with the looming threat of eventual assimilation.

With Russian investments into the energy sector and land purchases, Abkhazia will slowly lose its last vestiges of de-facto independence. On an economic level, Abkhazia is far richer than South Ossetia. But controlling it has other virtues. Out of all the separatist regions Russia controls, Abkhazia is arguably the most strategically located. A passage from the North to the South Caucasus, the region is also famous for its harbors and military infrastructure. Control over it gives Russia capabilities to check NATO/EU expansion into the region.

Russian plans in Abkhazia should be also seen within the context of Russia’s push to solidify its presence in the South Caucasus, especially in the aftermath of events in Karabakh and Russia’s peacekeeping mission there. Economic inroads into Abkhazia also mean a further distancing of other potential players such as Tbilisi and the collective West.

Author’s note: first published in cepa.org

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Eastern Europe

In Azerbaijan, Human Capital Investments are the Key to Resilient Growth in the era of COVID-19

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Photo: World Bank

By limiting access to health, education, social protection, and jobs, the COVID-19 pandemic threatens to reverse human capital gains in Azerbaijan. In a recently published report, Survive, Learn, Thrive: Strategic Human Capital Investments to Accelerate Azerbaijan’s Growth, the government of Azerbaijan and the World Bank identify the main challenges to building and activating human capital and put a spotlight on high-impact interventions that respond to constraints.

Fadia M. Saadah, World Bank Human Development Regional Director for Europe and Central Asia, reflects on the success and challenges of the past, and opportunities for the World Bank Group to partner with the government of Azerbaijan in ensuring resilient growth, powered by human capital investments.

Q. What do you see as the main challenges facing human capital formation and activation in Azerbaijan?

The government of Azerbaijan has achieved a great deal in terms of human capital development. Over the last five years, enrollment in higher education rose 21 percent. The introduction of mandatory health insurance supported an increase in the use of essential primary care level and improvements in efficiency. Contributory pensions and poverty-targeted social transfers raised the incomes of the bottom 40 percent substantially, facilitating household-level investments in health and education.

Despite this progress, gaps in human capital investments persist. On standardized tests, students from wealthier families score the equivalent of three years of schooling above students from poor families, an indication of wide inequalities in learning outcomes. Out-of-pocket payments remain high, despite the launch of mandatory health insurance, reducing access to services needed to control the rise of noncommunicable diseases. Only one in five households in the poorest quintile benefits from the targeted social assistance program, and labor force participation remains low, especially among women.

Azerbaijan’s Human Capital Index is 0.58, meaning that a child born today in Azerbaijan would be 58 percent as productive as she could have been as an adult if she had enjoyed full health and had benefited from a complete education. The COVID-19 pandemic has reduced access to social services and is projected to lead to an economic contraction of 4.2 percent in 2020. The government has risen to the challenge of recovering the gains in health and learning outcomes and ensuring that human capital development remains central to the political agenda.

Q. Azerbaijan faces the dual challenge of recovering from the COVID-19 pandemic and strengthening health, education, learning, and employment services to facilitate growth. What strategic investments do you recommend for the human development sector in the short and medium term?

The government aims to balance the medium-to-long term objective of reforming social systems with the ongoing COVID-19 pandemic response. Hence, in the health sector, we recommend the digitalization and interoperability of health information systems to support comprehensive surveillance and facilitate continuity of care in the treatment of noncommunicable diseases. Reforming health financing to increase public health spending and protect households from out-of-pocket costs will be important to increase health care access.

As schools reopen, Azerbaijan is investing in remediating learning losses. Doing so may involve ensuring that schools follow health protocols to reduce their risks of becoming the source of group infections, providing students with financial and nonfinancial incentives not to drop out of school, and equipping schools and training teachers to better manage in-person and distance learning. We also recommend establishing a fund to support innovation in higher education.

Social assistance will be essential to ensuring that the most vulnerable households are able to access social services. Improving the coverage of the targeted social assistance program and increasing public financing for these transfers will further improve households’ resilience to consumption shocks. Including employers in the design and implementation of active labor market programs will help link people to jobs.

The potential for human capital investments to drive growth and resilience in Azerbaijan is significant. An analysis by the World Bank, The Changing Wealth of Nations 2018, reports that human capital comprises 64 percent of global wealth. If Azerbaijan ensured complete education and healthcare among children and adults, its long-run per capita gross domestic product could be 1.67 times higher than it is today.

Q. The World Bank has partnered with Azerbaijan on landmark reforms since independence. How do you see the engagement evolving over the next few years?

The next phase of the human capital policy dialogue in Azerbaijan can benefit from a focus on putting this agenda into practice through investments in human capital. The World Bank Group remains committed to providing technical and financial support for operationalizing and implementing this ambitious strategy. We highlight important areas of engagement in education, health, social protection, and jobs below.

Education: The World Bank Group has long supported the government in the development of the education system, including reforms in general education and formulation of the country’s education sector development strategy. The government has introduced per capita financing in tertiary education and a remuneration and quality assurance system in secondary education.

The Second Education Sector Development Project, which closed in 2016, focused on improving the quality of teaching and learning in general education. Through ongoing policy dialogue, the World Bank Group will continue to support education reforms, especially to increase access to early childhood education and spur innovation in tertiary education.

Health: The World Bank Group has engaged in the health sector over the past few years through policy dialogue and provision of technical expertise to support health financing reforms. At the request of the government, it is facilitating knowledge exchanges that may inform the implementation of mandatory health insurance, drawing on the experiences of Kazakhstan, the Republic of Korea, and Costa Rica.

With funding from the Japan Policy and Human Resources Development Fund, the World Bank Group is supporting efforts to improve the governance of digital data and leverage claims data to strengthen provider payment mechanisms within the mandatory health insurance system. Over the next few years, the World Bank Group will continue to engage in policy dialogue on priority issues, including health insurance, e-health and telemedicine, and the development of an integrated claims management system.

Social Protection and Labor: In the past few years, the World Bank Group has supported efforts by the government to raise the most vulnerable people in Azerbaijan out of poverty, by investing in the implementation of the National Employment Strategy and critical social assistance and disability reforms.

A recently approved Employment Support Project aims to improve vulnerable people’s access to employment by enhancing the scope and effectiveness of the government’s Self-Employment Program, enhancing employment services and programs, and building public sector capacity.

The Internally Displaced Person Living Standards and Livelihoods Project and Additional Financing, which closed in 2019, helped improve the living conditions and increase the economic self-reliance of internally displaced persons. The World Bank Group will continue to support Azerbaijan through ongoing policy dialogue to strengthen the social protection system as a platform to improve human capital outcomes and households’ resilience to shocks.

World Bank

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