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Enhancing Connectivity
and Freight in Central Asia
Case-Specific Policy Analysis

Enhancing Connectivity
and Freight in Central Asia
Case-Specific Policy Analysis

The International Transport ForumThe International Transport Forum is an intergovernmental organisation with 59 member countries. It
acts as a think tank for transport policy and organises the Annual Summit of transport ministers. The ITF
is the only global body that covers all transport modes. The ITF is politically autonomous andadministratively integrated with the OECD.
The ITF works for transport policies that improve peoples’ lives. Our mission is to foster a deeper
understanding of the role of transport in economic growth, environmental sustainability and social
inclusion and to raise the public profile of transport policy.
The ITF organises global dialogue for better transport. We act as a platform for discussion and prenegotiation of policy issues across all transport modes. We analyse trends, share knowledge andpromote exchange among transport decision-makers and civil society. The ITF’s Annual Summit is theworld’s largest gathering of transport ministers and the leading global platform for dialogue on transport
policy.
The Members of the Forum are: Albania, Armenia, Argentina, Australia, Austria, Azerbaijan, Belarus,
Belgium, Bosnia and Herzegovina, Bulgaria, Canada, Chile, China (People’s Republic of), Croatia, Czech
Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Ireland,Israel, Italy, Japan, Kazakhstan, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico,
Republic of Moldova, Montenegro, Morocco, the Netherlands, New Zealand, North Macedonia, Norway,
Poland, Portugal, Romania, Russian Federation, Serbia, Slovak Republic, Slovenia, Spain, Sweden,
Switzerland, Turkey, Ukraine, the United Arab Emirates, the United Kingdom and the United States.

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Case-Specific Policy Analysis Reports
The ITF’s Case-Specific Policy Analysis series presents topical studies on specific issues carried out by the
ITF in agreement with local institutions. Any findings, interpretations and conclusions expressed herein
are those of the authors and do not necessarily reflect the views of the International Transport Forum or
the OECD. Neither the OECD, ITF nor the authors guarantee the accuracy of any data or otherinformation contained in this publication and accept no responsibility whatsoever for any consequenceof their use. This work is published under the responsibility of the Secretary-General of the ITF. This
document, as well as any data and map included herein, are without prejudice to the status of orsovereignty over any territory, to the delimitation of international frontiers and boundaries and to thename of any territory, city or area.
Cite this work as: ITF (2019), “Enhancing Connectivity and Freight in Central Asia”, International
Transport Forum Policy Papers, No. 71, OECD Publishing, Paris.

Acknowledgements
This report presents the findings of the first phase of the joint ITF-OECD “Enhancing Connectivity inCentral Asia” project. This first phase of the project has been made possible by the financial support of
the Government of Kazakhstan, for which the International Transport Forum (ITF) and the OECD aregrateful.
The report was prepared under the guidance of Mr. Jari Kauppila, Head of Quantitative Policy Analysis
and Foresight, ITF; and co-ordinated by Mr. Nicolas Wagner, Modeller and Analyst, and by Ms. Olga
Petrik, Modeller and Analyst, both of the ITF. The main authors of the report are Ms. Olga Petrik, Mr.
Nicolas Wagner, and Mr. Jari Kauppila.
Many of the quantitative aspects of this report make use of the ITF International Freight Model. The
authors are grateful to the model’s author, Mr. Luis Martinez, Modeller and Analyst at the ITF.
Substantial contributions to the work and to the report were made by Mr. Vincent Benezech, former
Modeller and Analyst, ITF; Ms. Indra Gromule, Head of International Road Carriage Co-ordination
Division, Road Transport Administration, Latvia, and Chair of the ITF Road Transport Group’s sub-groupon quota development; Ms. Elene Shatberashvili, Manager of the ITF’s Road Transport Group andMultilateral Quota; Mr. Jakub Siwiński, Policy Officer at the European Commission; and Mr. Dejan
Makovšek, Economist, ITF. For editorial support the authors thank Ms. Edwina Collins, Content
Production Co-ordinator, ITF; Ms. Katherine Farrow, Modeller and Analyst, ITF; and Michael Kloth, Headof Communications, ITF.
The project of which this report is one output is supervised by Mr. William Tompson, Head of the Eurasia
Division of the OECD’s Global Relations Secretariat, with the support of Mr. Grégory Lecomte, Central
Asia Manager, and Mr. Arnault Prêtet, Project Manager, in the Eurasia Division. Further support wasprovided by Mr. Luke Mackle, Consultant, and Ms. Tabea Klang, former Consultant, both of the Eurasia
division.
The project benefited from invaluable support from Mr. Aidyn Danabayev, Senior Manager in theTransport and Logistics Directorate at Samruk Kazyna, and Ms. Madina Nurakisheva in Kazakhstan, Mr.
Bakyt Omurzakov in Kyrgyzstan, Mr. Badral Byambaa, Senior Officer at the Ministry of Road andTransport of Mongolia, Ms. Lakshmi Boojoo, Director of the Director of the Economic Policy andCompetitiveness Research Center (EPCRC), and Ms. Buyanchimeg Enkbayar in Mongolia, Ms. Larissa
Kislyakovaya, Chairman of the Board of the Union of Professional Consultants, and Ms. Veronika
Grushevskaya in Tajikistan, and Ms. Aziza Umarova, Chief Executive Officer at SmartGov Consulting and
Ms. Ikbal Yusupova in Uzbekistan.
The report and the project would not have been possible without the co-operation of and input from
representatives of numerous ministries and government agencies in Kazakhstan, Kyrgyzstan, Mongolia,
Tajikistan, and Uzbekistan. In particular, we are grateful for the co-ordination, assistance and interest
shown by our counterparts in the relevant authorities of each country: Mr. Roman Sklyar, Minister of
Investment and Infrastructure Development of Kazakhstan, Mr. Timur Toktabayev, Vice Minister for
Investments and Development of Kazakhstan, Mr. Serik Bashimov, Director of Department for Transit
and Transport logistics development, Mr. Dastan Ramazanov, Head of Transit development division,
Department for Transit and Transport logistics development, Ministry of Investment and Developmentsof Kazakhstan, Mr. Abay Besken, Attaché of the Department for Foreign Economic Policy, Ministry ofForeign Affairs of Kazakhstan; Mr. Zamirbek Askarov, Deputy Prime Minister of Kyrgyzstan, Mr. Daniiar
Imanaliev, Head of the Strategic Development, Economic and Financial Policy Division of the
Administration of the President of Kyrgyzstan, Mr. Eldar Abakirov, Deputy Minister of Economy of
Kyrgyzstan, Mr. Dastan Abdyldaev, Expert in the Economy and Investment Department of the Office of
the Prime Minister; Mr. Damdinsuren Davaasuren, State Secretary at the Ministry of Foreign Affairs ofMongolia, Mr. Tsogtgerel Batchuluun, former Vice Minister for Road and Transport Development ofMongolia, Mr. Batbold Sandagdorj, Director of Road Transport Policy Implementation and Coordination
Department, Road and Transport Development Ministry of Mongolia, Mr. Enkhbold Vorshilov, Director
General, and Mr. Ulziisaikhhan Ganbold, Deputy Director General of the Ministry of Foreign Affairs, Mr.
Banzragch Bayarsaikhan, Chairman, Mr. Adiya Munkhbold, head of Research and Analysis Office, and Mr.
Tamir Tugsbilguun, Officer at the Research and Analysis Department, National Development Agency ofMongolia and Ms. Ayush Ariunzaya, Chair of the National Statistics Office of Mongolia; Mr. Azim Ibrohim,
Deputy Prime Minister of Tajikistan, Mr. Nematullo Hikmatullozoda, Minister of Economic Development
and Trade of Tajikistan, Mr. Khudoyorzoda Khudoyor Zavqibek, Minister of Transport of Tajikistan, Mr.
Sukhrob Mirzoev, Vice Minister of Transport of Tajikistan; Mr. Nodir Otajonov, Deputy Advisor to the
President of Uzbekistan, Mr. Jamshid Khodjaev, Minister of Foreign Trade of Uzbekistan, Mr. Sahib
Saifnazarov, Deputy Minister of Foreign Trade of Uzbekistan, Mr. Mubin Mirzaev, Deputy Minister of
Economy of Uzbekistan and Mr. Shukhrat Sadikov, former Head, National Project Management Agency.
We are particularly indebted to the efforts of those that met with the OECD and ITF teams during 2018
for their valuable insights and assistance. Special thanks are due to: Mr. Giovanni Capannelli, Country
Director, Kazakhstan, and Mr. Pradeep Srivastava, Country Director, Tajikistan, all at the AsianDevelopment Bank (ADB); Mr. Reza Mohammadi, Field Coordinator, Kazakhstan, UNCTAD; Mr. Ato
Brown, Country Manager for Kazakhstan, Mr. Jan-Peter Olters, Country Manager Uzbekistan, Mr. Paul
Vallely, Programme Leader for Connectivity and Infrastructure, and Ms. Mathilde Lebrand, all at theWorld Bank; Ms. Ekaterina Miroshnik, Director, Head of Infrastructure, Russia, Central Asia andMongolia, Ms. Irina Kravchenko, Country Director Mongolia, Ms. Ayten Rustamova, Country Director
Tajikistan, and Ms. Idil Bilgic-Alpaslan, Principal Infrastructure Economist, all of the European Bank for
Reconstruction and Development (EBRD); Mr. David Oberhuber, former Programme Manager, Mr. Jens
Schlechter, Advisor, and Ms. Asel Uzagalieva, Component Manager, Trade Facilitation in Central Asia, allof the German Development Agency (GIZ); Mr. Hideki Tanabe, Country Director, Japanese International
Cooperation Agency; Mr. Temirbek Shabdanaliev, Chairman, Association of Freight Forwarders of
Kyrgyzstan; Ms. Battsetseg Jorsuren, President, and Ms. Tsatsral Tsengel, Director of International Affairs,
Mongolian Customs Consultants and Brokers Association; Ms. Tsogzolmaa Sanjaa, Foreign Relations
Officer of the National Road Transport Association of Mongolia (NARTAM); Ms. Nurisa Diushembieva,
BOMCA 9 Deputy Regional Manager in Central Asia, EU Border Management Programme in Central Asia
(BOMCA); and Mr. Marco Ferri, Minister Counsellor, Delegation of the European Union to Mongolia, Mr.
Federico Birocchi, Head of Trade and Energy Section, Delegation of the European Union to Kazakhstan,
Ms. Zulfiya Davlatbekova, Project Manager, Delegation of the European Union to Tajikistan, Mr. Ovidiu
Mic, former Head of Co-operation, and Mr. Elbek Khodjaev, Project Manager, Delegation of theEuropean Union to Uzbekistan; Mr. Bekhzod Rakhmatov, Associate Economic Affairs Officer at theTransport Division, United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP).
Final editorial and visual support was provided by Ms Vanessa Berry-Chatelain, Communications
Manager, OECD Global Relations Secretariat. Valuable administrative support was provided by Ms.
Tatyana Skritskaya, Assistant to the Group on Road Transport, ITF; and Ms. Anna Chahtahtinsky and Ms.
Eugenia Klimenka, Assistants within the OECD Eurasia Division.

TABLE OF CONTENTS

Table of contents
Executive summary ............................................................................................................................. 9
1. Introduction .................................................................................................................................. 13
Setting the scene: an overview of Central Asian countries ........................................................... 14
Enhancing connectivity in Central Asia: challenges and opportunities ......................................... 23
An evidence-based framework for strategic connectivity planning .............................................. 27
References ........................................................................................................................................ 31
2. Connectivity in Central Asia within the global transport system.................................................... 33
Underlying trade and freight projections ...................................................................................... 34
Assessment framework for freight connectivity............................................................................ 44
Results from freight connectivity analysis for Central Asia ........................................................... 51
Moving forward: cost and travel time reduction is the key........................................................... 62
Enhancing connectivity does not automatically lead to economic benefits.................................. 63
References ........................................................................................................................................ 66
3. Benchmarking national freight systems ......................................................................................... 68
Transport infrastructure in Central Asia ........................................................................................ 68
Transport services and logistics in Central Asia ............................................................................. 76
Customs policies in Central Asia .................................................................................................... 85
References ........................................................................................................................................ 91
4. Transport planning and governance for better connectivity ......................................................... 93
Transport planning ........................................................................................................................ 94
Governance and regulation ......................................................................................................... 112
Sustainability ............................................................................................................................... 120
Towards better planning and governance: recommendations across the three dimensions ..... 126
References ...................................................................................................................................... 130
5. Key recommendations ................................................................................................................. 132
Strengthening international and regional co-operation to enhance connectivity ...................... 132
Key recommendations for Tajikistan ........................................................................................... 134
Key recommendations for Kyrgyzstan ......................................................................................... 137
Key recommendations for Uzbekistan ........................................................................................ 138
Key recommendations for Mongolia ........................................................................................... 140
Key messages for Kazakhstan ...................................................................................................... 142
References ...................................................................................................................................... 148
Annex 1. The International Transport Forum’s International Freight Model .................................... 149
References ...................................................................................................................................... 155
Annex 2. Impact of distance on reaching global centres of production and consumption ............... 156

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FiguresFigure 1. Population distribution in Central Asian countries............................................................. 15
Figure 2. Regional growth and increasing economic concentration in Central Asia ......................... 17
Figure 3. Freight traffic growth in Central Asia, (2007=100%, in tonne-kilometre) ......................... 19
Figure 4. Railways: modal share in Central Asia (2015, in tonne-kilometre) .................................... 19
Figure 5. Road traffic along Central Asia Regional Economic Cooperation (CAREC) corridors .......... 22
Figure 6. Rail traffic along Central Asia Regional Economic Cooperation (CAREC) corridors ............ 22
Figure 7. Value of trade by region ................................................................................................... 35
Figure 8. Value of trade by commodity ............................................................................................. 36
Figure 9. Global freight projections by 2050 ..................................................................................... 38
Figure 10. Belt and Road Initiative corridors ..................................................................................... 41
Figure 11. CAREC regional economic cooperation corridors ............................................................ 42
Figure 12. Planned and existing railway lines in the region and CAREC corridors............................. 46
Figure 13. Planned and existing roads in the region and CAREC corridors ....................................... 47
Figure 14. Road and rail international freight flow in 2015 .............................................................. 48
Figure 15. Road and rail international freight flow by 2030 ............................................................. 49
Figure 16. Road and rail international freight flow by 2050 ............................................................. 49
Figure 17. Transit share of freight traffic .......................................................................................... 50
Figure 18. Global connectivity; access to global GDP ....................................................................... 52
Figure 19. Connectivity gap compared with Germany ...................................................................... 52
Figure 20. Impact of distance on reaching global centres of production and consumption ............. 53
Figure 21. Composition of the connectivity gap ............................................................................... 54
Figure 22. Connectivity gap compared with Germany, depending on
the infrastructure plans and time horizon, % .................................................................................. 55
Figure 23. Capacity needs in percentage of increase of the current capacity, 2030 ........................ 57
Figure 24. Capacity needs in percentage of increase of the current capacity, 2050 ........................ 57
Figure 25. Connectivity gap compared with Germany depending on
the infrastructure plans and border crossing, 2015 and 2050 (%) .................................................. 59
Figure 26. Change in traffic passing through each border crossing point
as a result of border crossing time improvement, 2050 (%) ........................................................... 60
Figure 27. Connectivity gap compared with Germany depending on
the infrastructure plans and maritime costs, 2015 and 2050 (%) ................................................... 61
Figure 28. Potential growth of GDP as a result of transport policy measures, from 2015 to 2050 . 65
Figure 29. LPI infrastructure score, 2007–2018 ................................................................................ 70
Figure 30. WCI infrastructure score, 2007–2017 .............................................................................. 70
Figure 31. Spending on infrastructure .............................................................................................. 73
Figure 32. Logistics Performance Index scores for various countries ............................................. 77
Figure 33. Logistic costs in selected countries .................................................................................. 78
Figure 34. Cost structure of trucking services in selected countries ................................................. 79
Figure 35. Railway asset utilisations in selected countries................................................................ 81

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Figure 36. Staff productivity in selected countries............................................................................ 81
Figure 37. Crossing times for road freight at selected borders ......................................................... 87
Figure 38. Border crossing costs (top) and times (bottom) along CAREC corridors .......................... 88
Figure 39. Trade Facilitation Indicators for Central Asian countries,
benchmarked against South Africa, 2017 ........................................................................................ 90
Figure 40. Policy framework and implementation cycle ................................................................... 94
Figure 41. Planning: Dimension average scores and indicator scores............................................... 94
Figure 42. Governance and regulation: Sub-dimension average scores and indicator scores ........ 113
Real-time information display ......................................................................................................... 119
Figure 43. Sustainability: Sub-dimension average scores and indicator scores .............................. 121
Figure 44. Scores for the three dimensions of transport planning and regulation ......................... 126
Figure 45. Border crossing time at the Kulma pass border crossing point ...................................... 136
Figure 46. Heavy duty truck age and number of employees
per road transport company in Kyrgyzstan ..................................................................................... 138
Figure 47. Investments in roads by location in Mongolia (%) ......................................................... 141
Figure 48. Aimags’ GDP between 1995 and 2015 ........................................................................... 141

TablesTable 1. Key economic indicators for Central Asian countries, 2017 ................................................ 15
Table 2. Current and planned transport corridor projects in Central Asia ........................................ 40
Table 3. Impact of increased sea transport cost on modal share of China–Europe transport .......... 51
Table 4. Infrastructure capacity required to maintain network performance, 2030 and 2050
56
Table 5. Border crossing reduction effect on countries' needs forinfrastructure increase, transit flow and total flow, 2050 (% of change) .......................................... 59
Table 6. Effect of a global 50% maritime cost increase on countries' needs
for an infrastructure increase, and traffic flow increase, % of the increase, 2050 ........................... 62
Table 7. Transport infrastructure provision in Central Asian countries and comparators ................ 71
Table 8. Road design in Central Asian core national networks ......................................................... 72
Table 9. Implementation of Road Asset Management systems ........................................................ 75
Table 10. Assessment of logistics services by local logistics professional ....................................... 84
Table 11. National strategies for transportation development ........................................................ 96

Boxes
Box 1. Dordoi and Kara-Suu Bazaars ................................................................................................. 20
Box 2. Agglomeration economies ..................................................................................................... 26
Box 3. Modelling framework for long-term global trade scenarios .................................................. 33
Box 4. The ITF International Freight Model....................................................................................... 37
Box 5. The Trans-European Transport Network (TEN-T) ................................................................... 43
Box 6. Measuring the connectivity gap ............................................................................................. 45
Box 7. Road user charging in New Zealand ....................................................................................... 75

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Box 8. Chile’s National Public Investment System (SNIP) .................................................................. 76
Box 9. Supporting the creation of shortliners in France: Les opérateurs ferroviaires de proximité .. 83
Box 10. The National Transport Strategy and Strategic Transport Projects Review of Scotland ..... 101
Box 11. Chile investment and project appraisal system.................................................................. 103
Box 12. Risk management tools applied Europe ............................................................................. 105
Box 13. The National Project Management Agency under the
President of the Republic of Uzbekistan ......................................................................................... 109
Box 14. Features of developed highway asset management systems ............................................ 111
Box 15. Costs and benefits of separation in the railway industry ................................................... 115
Box 16. Border wait times displayed online in real time ................................................................. 119
Box 17. Examples of different types of logistics observatories ....................................................... 125
Box 18. Web-based transport analysis guidance in England ........................................................... 145
Box 19. A German initiative to increase the reliability of transport infrastructures ....................... 145

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EXECUTIVE SUMMARY

Executive summary
What we did
This report provides advice to the Central Asian governments (Kazakhstan, Kyrgyzstan, Mongolia,
Tajikistan and Uzbekistan) on the most pressing issues related to freight connectivity, with a focus ontransport infrastructure, logistics and institutional capacity. Three streams of analysis are applied toassess connectivity and infrastructure needs in Central Asia: (i) an assessment of the regional large-scale
infrastructure programmes and of their capacity to improve connectivity; (ii) a benchmarking of thenational freight transport policies against OECD best practices; and (iii) a qualitative assessment of thecountries’ capability to design and evaluate freight-related policies, especially when it comes to longterm infrastructure and policy plans. The findings are supported by a review of the literature, interviews
with key stakeholders across all sectors, and information collected during fact-finding missions to all fivecountries.

What we foundPlanned investments in the region will improve connectivity but increased transit flows will be a challenge
There is a significant connectivity gap between the Central Asian countries and the most logisticallyadvanced countries. The Central Asian countries can access 50% less economic opportunities, asmeasured in terms of world gross domestic product (GDP), than Germany, for example. Current
investment plans will increase connectivity by 8% but improving non-infrastructure elements ofconnectivity, such as border crossings, is still needed.
By attracting a share of the freight flows from the People’s Republic of China to Europe, planned
infrastructure will contribute to the increase of transit traffic. This will bring challenges along with
benefits. On some corridors, freight flows could triple by 2050, putting considerable stress on theregion’s infrastructures. Transit traffic will also be accompanied by negative consequences in terms ofincreased maintenance costs, congestion, local pollution and road safety, issues that are already faced inmany Central Asian countries.
International infrastructure projects foster investments on main corridors but shift attention away fromdomestic connectivity
In recent years international projects have increased expenditure on road and rail significantly to 1% of
GDP which is in line with international standards. Local and regional roads are, however, in poor
condition as the continued underfunding of maintenance has left them in a state of disrepair. Existing
infrastructure plans focus on key international corridors, but ensuring the connectivity of local businessto key corridors is also crucial for realising the benefits from agglomeration economies. Some of theseroutes will gain a substantial flow increase as soon as 2030. These include routes in the north of
Kazakhstan, as well intra-regional routes such as Samarkand – Dushanbe, Kyzylorda – Urganch, andTashkent – Khujand.

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EXECUTIVE SUMMARY

The transport and logistics sector needs to be improved with enhanced regional and international
cooperation
Transport companies (including trucking companies, railways and freight forwarders) in the region
generally face high transport costs and a lack of skilled labour supply. The logistics sector in Central Asia
is still in an early stage of development, and logistics costs are high by international comparison. Complex
logistics services, such as freight forwarding, custom brokering and third-party logistics providers (3PLs),
are limited.
The lack of cooperation and harmonisation of rules and standards remains a regional issue and is one of
the main reasons why the share of intra-regional trade is only around 5% of total trade. Not all of thesigned and ratified agreements are currently implemented and enforced as there is no mechanism foroverseeing the implementation of the conditions and requirements of these agreements. In addition, thecountries still have different standards for the maximum weight and axle loads of heavy goods vehicles
and different formal procedures and rules for entering and crossing each country, which accentuates cooperation and harmonisation problems in the region. The situation is complicated by the substantial
border-crossing time, which is especially long due to queuing. Some borders still do not have official
demarcation.
Institutional capacity is lacking to implement reforms and select projects
In recent years Central Asian countries have shown significant progress at all levels of transport planning,governance and regulation. However, the processes used to develop transport policy and infrastructureneed to be more transparent and consistent, as well as to be more data-driven. Plans and strategies
often miss measurable objectives or budgets. Impact assessments are rare, and performanceassessments are carried out irregularly. There is a significant data gap, which precludes effectiveplanning. Consistent risk and uncertainty analysis frameworks – and their application across different
dimensions of planning and governance, or across different projects – are currently missing.

What we recommend
Enhance local connectivity along with improvement of international corridors
The main corridors identified by international programmes need to be complemented by intra-regional
connectivity. Various measures can help to reduce the capacity needs to maintain or achieve certain
levels of network performance. These measures include actual improvements of the infrastructure (e.g.
the construction of lanes, renovation of existing lanes, increases in lane capacity, and improvements inpavement quality) as well as efficiency improvements (e.g. the use of bigger shipments and ‘mega-trucks’
and the consolidation of cargo before its shipment).
Price transit traffic to cover its full costs
Charges levied on road users through fuel taxes and other forms of taxation are currently not alignedwith true costs. It is recommended that the full range of costs associated with transit traffic is priced in.
In particular, investment – rather than just maintenance – should be covered. External costs, including
road safety, local pollution and CO2 emissions, should be also accounted for. This will lead to a cost
increase that can reduce the competitiveness of the countries’ transport routes at the international
level; however, measures to improve transport and logistics services, border crossing times and travel
times can compensate for the cost increase.

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Reform road investment and maintenance funding
There is a clear need for stable funding flows dedicated to road maintenance. The fund should becovered through road-user charges that reflect the marginal cost of road use, rather than throughgeneral taxation. Although several road funds already exist in Central Asian countries, they should be
restructured so as to have a strong legal basis, act as independent executive authorities, and benefit
from in-house technical capacity. Furthermore, investment and maintenance should be allocatedthrough separate budgets. It is advised to complement this with a systematic prioritisation ofinterventions through better road-asset management systems.
Pursue private investments for cost efficiency
Private finance needs to be pursued on the right merits to avoid the political unsustainability of private
investment in infrastructure. The countries should keep in mind, however, that international experience
shows that PPPs can help to solve the problem of financing but not of funding. Therefore, thegovernments should pursue private investments for cost efficiency only and in areas where there iscontinuous pressure for efficiency, such as competition. The countries should also consider adopting theInternational Public Sector Accounting Standards (IPSAS 32) to maximize the value for money of private
investments.
Support the creation of a modern logistics sector
Policy-makers need to foster the development of the logistic sector through incentives to support
professional training and higher education in areas of logistics and transport, and through the
involvement of the private sector in the design of national logistics policies. Barriers to market entry
should be reduced to attract leading international firms. There is a need to enhance productivity in both
the rail and road freight sectors through the adequate regulation of these sectors.
Institutionalise best practices in transport planning
In a context of increasing infrastructure needs and constrained public budgets, the Central Asian
countries need to maximise the value for money of their transport investments. The countries should
introduce standards for data collection and ensure continued data collection, updates and sharing
between relevant actors. Logistics observatories established at national and regional levels can serve asdata collection and processing centres. Their key activities could include data collection, analysis,
dissemination and benchmarking for policy support. Quantitative models should be used for forecasting
traffic. Cost-benefit analysis (CBA) should be applied systematically, with a level of complexity adapted tothe scale of each project. Publicly available guidelines, containing values of key parameters to assesscosts and benefits, should be produced to document the assessment methodology. Ex-post evaluation ofprojects should be conducted on a systematic basis to provide feedback. Strategies and other planning
frameworks should also account for risks and uncertainties, including their identification, assessment andtreatment.
Set performance standards for customs
Significant progress has been made in terms of customs performance. However, border crossing times
are still long and highly unpredictable. Moreover, the variability of border crossing times is increasing.
This is of particular importance as shippers tend to value consistency in crossing times more than overall
travel time itself. A comprehensive set of performance standards for customs would be useful to identify
key areas of improvements and monitor them.
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EXECUTIVE SUMMARY

Straighten regional and international cooperation
The countries should continue developing regional agreements aimed at formalising the regional rail,
road and dry ports networks as part of an integrated network. The countries also should ensure theenforcement of regional and international agreements at the national level. Executive bodies should
receive detailed directives allowing them to enforce agreements. The countries should consider
establishing oversight bodies and adopting corresponding mechanisms to ensure intergovernmental
supervision of the implementation and application of the agreements and related guarantees. In order toensure transparency for the participating countries and public, the adoption of a mechanism of reportingto an intergovernmental oversight body should be considered. The countries should also continue
harmonising freight-related standards (e.g. train length and, for heavy vehicles, maximum weight andaxle loads) and related legislation in the region and with their neighbours.

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INTRODUCTION

1. Introduction
Central Asia has in recent decades been relatively peripheral to global trade flows, despite its historicalrole as a land bridge between Asia and Europe. The freight volumes passing through the region between
Asia and Europe are currently less than 2% of what is carried by sea. Very little cargo traffic between Asia
and Europe goes overland, except for what goes by rail through the Russian Federation.
This is changing, however. Rail links between the People’s Republic of China and Europe, both existingand planned, have attracted interest, as they offer a potential advantage a vis-à-vis the shipping linkthrough the Suez Canal. Two potential game-changers – the Eurasian Economic Union and China’s Beltand Road Initiative (BRI) – may further encourage new trade and transport connections in the region(ITF, 2017; Rastogi and Arvis, 2014).
Central Asia also figures prominently in a variety of other initiatives and plans for enhancing connectivity
and integration across Europe and Asia. These include the European Union’s TRACECA1 initiative and the
New Silk Road (NSR) backed by the United States, as well as various projects sponsored by India andother actors to promote connectivity in the region, such as the International North–South Transport
Corridor or the proposed Central Asian Regional Economic Cooperation (CAREC)2 corridors.
Today, Central Asia lags on several dimensions of connectivity and integration (Pomfret, 2010; Rastogi
and Arvis, 2014; ADB, 2014), hindering the development of trade. The region’s economic integration islimited by the low density of settlement and economic activity, infrastructure bottlenecks, ageing roadand rail networks, and long distances to major markets. It is also constrained by numerous regulatory
and policy barriers to cross-border flows. Moreover, the existing connectivity pattern is largely a productof the region’s reliance on exports of primary products and is oriented towards Russia.
The centre of gravity of the world economy is gradually but steadily shifting east and south as a result of
GDP growth in Asia. This will also affect production and consumption patterns and hence international
trade and supply chains. Economic growth in emerging regions increases the need to improve freight
infrastructure to meet growing trade demands. The existing freight infrastructure and related policies
may need to change if the Central Asian countries wish to diversify their economic structures (OECD,2018) and benefit fully from the increasing trade between Asia and Europe.
This report assesses freight connectivity in Central Asia, with a focus on Kazakhstan, Kyrgyzstan,
Mongolia, Tajikistan and Uzbekistan. It begins by analysing the current level of connectivity in the region(relative to the needs of the regions’ economies) and the efficiency of the region’s freight and logistics
networks; it then reviews the region’s transport and logistics strategies, including infrastructure
investments plans. It also identifies possible future bottlenecks and missing links under alternative tradeand policy scenarios. The report provides advice on ways to improve connectivity and recommendations
for improving the policy process and for regional co-ordination to improve freight efficiency andconnectivity.
After presenting the Central Asian regional context, the report reviews the importance of transport
connectivity for economic development and discusses current regional ambitions to enhanceconnectivity. An overview of the International Transport Forum’s (ITF) framework for assessing
connectivity and infrastructure needs is also provided. Subsequent chapters offer detailed assessmentsof regional connectivity (Chapter 2), benchmarking of national freight systems (Chapter 3), and the

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institutional capacity in terms of transport planning and governance (Chapter 4). The report concludes
with recommendations for improving planning and governance, sets out policy options to improveconnectivity, and highlights the data needed to support decision-making and regional co-operation.

Setting the scene: an overview of Central Asian countries
Central Asian countries have challenging geographies and low population density

The varied geography of Central Asia presents a number of region-specific challenges for increasing theconnectivity of its countries. The southeast of the region is bounded by high mountain ranges. In
countries such as Tajikistan and Kyrgyzstan, where mountains cover 87% and 94% of the countries,
respectively (FAO, 2016), transport and major roads often have to take circuitous routes or pass throughhigh, dangerous passes. A spectacular example is that of the Torugart pass, a strategic border crossing
point and the most direct road link between Kyrgyzstan and the Xinjiang Autonomous Region of China. At
an elevation of over 3 700 meters, it is remote and has extreme weather that causes it to be closed forseveral months a year. By contrast, Central Asia also has some of the largest desert and steppe regions in
the world, from the Great Dala steppe of Northern Kazakhstan to the Kyzyl Kum of Western Uzbekistan
and the Gobi Desert of Mongolia. The combination of impenetrable mountain ranges and vast expansesof underdeveloped land, with the concomitant problem of large distances (both domestic andinternational) between population and production centres, make it difficult to develop and implement a
region-wide programme for improving connectivity.
Low population density is a common feature among Central Asian countries. With the exception of
Uzbekistan, the Central Asian countries have some of the lowest population densities in the world. The
average density is 13.7 people per km2, compared with 136 in China and 150 in Western Europe.
Mongolia, the least densely populated country of the region, has a population similar to that of Lithuania
living in an area the size of South Africa. With less than one inhabitant per km2, Mongolia is in fact one of
the least densely populated countries in the world, just behind Greenland.
The region’s population is concentrated in medium-sized cities. An important phase of the region’s
urbanisation took place under planned economies, and the current situation is still mainly a reflection of
that. As a result of the Soviet approach to urbanisation, the majority of urban communities are small andmedium-sized towns with populations of not more than 100 000, mostly between 10 000 and 50 000.
Such cities account for about 16% of the urban population in Kazakhstan, 25% in Kyrgyzstan, 35% inTajikistan, and about 35% in Uzbekistan. Human settlement patterns tend to be less concentrated thanin OECD countries. For example, the Kazak population is half as concentrated as other large, low-density
countries such as Australia, Canada or Brazil.
Figure 1 depicts the region’s general population distribution. It highlights the main urban centres, which
are rather isolated – with the exception of the historic settlements of the Silk Road. The route between
Bukhara, Samarkand, and Tashkent up to Adihzhan in the Ferghana valley forms a relatively densely
populated corridor, sharply contrasting with the rest of the region.
This type of geography is extremely challenging from a transport perspective. There are very few
consumption centres within the regions, and connecting them is difficult. On the one hand, this meansthat the economy is scattered and that an efficient transport system is essential to connect it. On theother hand, expected traffic levels will be low, and the geographical conditions yield high infrastructure
unit costs with a low rate of return for infrastructure projects.

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Figure 1. Population distribution in Central Asian countries

Source: ITF computations based on the Global Human Settlement Layer (Pesaresi et al., 2013).

Table 1. Key economic indicators for Central Asian countries, 2017
Countries

GDP
Population(USD billion(million
2015)
inhabitants)

Area
2(‘000 km )Density(inhabitants2
per km )GDP per
capita(USD)

Urbanisation rate
Annual GDP(% of population growth averageliving in urban(2005-2017)
areas)

Kazakhstan

184

18.0

2700

7

10510

57%

5.4%

Kyrgyzstan

7

6.2

192

32

1070

36%

4.6%

Mongolia

13

3.1

1554

2

4071

68%

7.5%

Tajikistan

9

8.9

139

64

1015

27%

6.8%

Uzbekistan

66

32.4

425

76

2031

51%

8.0%

Total

290

68.6

5009

14

4224

49%

6.7%

Lower-middle-income
countries

—

—

—

135

2189

40%

5.9%

Upper-middle-income
countries

—

—

—

46

8225

65%

5.4%

Source: World Development Indicators (World Bank, 2017).

Fast-changing economies will lead to new transport needs

As shown in Table 1, the region’s real GDP grew at an average rate of 6.7% between 2005 and 2017. Thiswas despite a significant slowdown caused by the global drop in commodity prices in 2014-15. Thisstrong economic dynamic is shared by all the region’s countries, whose annual growth rates (asestimated by the World Bank) vary from 4.6% (Kyrgyzstan) to 8% (Uzbekistan). In general, hydrocarbons
and mineral commodities have been the main drivers of growth. One-fourth of Mongolia’s GDP is
produced by its mining industry, and the country is a growing exporter of copper. Kazakhstan is major oil

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producer and has large reserves of a wide range of metallic ores, industrial minerals, and fuels.
Uzbekistan is one of the leading world producers of gold and has large gas resources. Although theeconomies of the Kyrgyzstan and Tajikistan are less commodity-intensive, gold still represents a large
share of their exports. The end of the commodity super-cycle, however, led to high year-on-year growthvariations in the region – particularly in Kazakhstan and Mongolia, where the economic growth rate wasslightly over 1% in 2016.
The economic weight of the region is small and geographically concentrated in medium-sized cities. The
countries’ cumulative GDP is 470 billion in 2015 USD. India’s GDP is five times higher, for an area which isthree times smaller. As in most OECD countries, the geographical concentration (in GDP) is higher thanthe one in population, reflecting agglomeration effects. Central Asian economies tend to be heavily
concentrated both spatially and in terms of economic sectors. Historically, much of the Central Asia’s
industrial capacity has been concentrated in mono-functional cities, where most of the population has
worked for a single industry. Examples are numerous: In Kazakhstan, the cities of Arkalyk, Tekeli, andZhitikara are mining cities where most activities are operated by a single company which is responsible
for most of the industrial production of its oblast. Tursunzoda, a city of 40 000 inhabitants in Tajikistan, ishome to the Tajik Aluminium Company, one of the largest aluminium plants in the world and Tajikistan’s
chief industrial asset.
However, the Central Asian economies are rapidly shifting away from this model. Economic activities andsettlement patterns are becoming increasingly concentrated in large cities. Regional growth has been
extremely uneven since 1995 in terms of both population and value added (see Figure 2). The economic
capitals, including Almaty, have been acting as growth poles, while most other regions are lagging
behind. The weight of the economic capitals in the regional economy has dramatically increased inrecent decades, from 40% of the total GDP of Central Asia in 1995 to more than 60% in 2015. Only a few
secondary growth poles contribute significantly to national growth. All of them either are naturalresource-intensive regions or benefit from economies of agglomeration. Examples include the Qyzlorda
region in Kazakhstan, which has benefited from a cluster of activities around the Baikonur Cosmodrome;
and the Ömonogovi region in Mongolia, where Oyu Tolgoi, a major open-pit copper mine, wasconstructed in 2013.
Economic diversification is high on the regional policy agenda. The Central Asian governments are
increasingly acknowledging that their economies’ dependence on limited commodities has severe
drawbacks. As a result, several policies supporting small and medium-sized enterprises are being
implemented.
Here again, considerable challenges are associated with increasing economic concentration and rapid
growth. There is a strong demand for infrastructure around growth poles. Large mining sites areproducing large flows of bulk materials, and spatial inequity is increasing. The diversification of theeconomy creates a demand for more sophisticated logistics services.

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Figure 2. Regional growth and increasing economic concentration in Central Asia

Source: ITF computations based on GIS data from (Kummu et al., 2018).

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Transport flows in Central Asia are increasing

Volumes transported by the surface modes – rail, road and waterways – in Central Asia increased by 49%
between 2007 and 2015, measured in tonne-kilometres (see Figure 3). This corresponds to an annual
growth of 5% and is significantly more than in most high-income and upper-middle-income countries. In
Western countries, freight transport decreased significantly after the 2008 crisis and has not yet
recovered to pre-crisis levels. In Eastern Europe, freight transport is still growing, but at almost half therate (2.8%) of Central Asia. Yet a growth of this order of magnitude is expected given the economic
growth of the region, which was 4.9% per year during that time frame. The freight intensity (in this case,the long-run elasticity of freight activities) usually depends on income levels and is typically around 1 inmiddle-income countries. As a country grows richer, its economy tends to be less freight-intensive andthere is, to a certain extent, a decoupling between economic growth and transport flows.
There is a great degree of variation in the development and nature of transport flows across the region.
In Tajikistan, for example, freight flows are growing faster than in the rest of the region because thecountry has a more freight-intensive economy, relying heavily on agricultural products (especially
cotton), mining products and, to a lesser extent, aluminium production. Mongolia’s transport freightflows are extremely volatile – reflecting the variability of its overall economy, which depends primarily on
the mining sector.
Rail’s modal share in the region is high (Figure 4) but declining. Everywhere in the region, with thenotable exception of Tajikistan, the modal share of rail is high compared to international standards. In
most Central Asian countries, over 40% of freight (in tonne-kilometres) is transported by rail, as
compared to around 20% in European countries (regardless of income level). There are three main
reasons for this. First, the region has a well-developed railway network, with good geographicalcoverage. Second, the types of goods transported – namely bulk freight, including mining andagricultural products – are well suited for railway transport. Finally, the generally poor state of the road
network plays a role.
Tajikistan’s low modal share of rail transport is due in part to the nature of its rail network. After the fallof the Soviet Union it was separated into two, non-connected branches that do not serve the national
economy adequately. In the north, a railway line crosses Tajikistan, linking Tashkent and the Fergana
Valley in Uzbekistan. In the south, a line connects Dushanbe with southern Uzbekistan and the rest of theformer Soviet railway network via Turkmenistan. Furthermore, a significant drop in freight traffic
occurred after 2009, when a dispute arose with Uzbekistan because of a reduction in Uzbek transit
through the northern branch of Tajik railways and a complete blockade of the southern branch.
However, if relationships with the Uzbek authorities continue to improve, it is possible that rail activity
will return to its former level. The Kyrgyz railway network is in a similar situation, with two unconnectedlines; but it has been less affected due to easier border-crossing conditions.
As the Central Asian economies diversify, the demand for transport is likely to shift towards road freight.
This is indeed what recent trends are showing. Although rail freight (measured in tonne-kilometres) is
increasing in all Central Asian countries, it is doing so at a slower pace than road freight. Rail freight grewby 4% per year between 2007 and 2015, compared to an 11% increase for road freight. Consequently,
rail’s market share is declining.

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Figure 3. Freight traffic growth in Central Asia,(2007=100%, in tonne-kilometre)

Source: National statistics agencies.

Figure 4. Railways: modal share in Central Asia
(2015, in tonne-kilometre)

Source: National statistics agencies.

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International exchanges are fuelling traffic growthCentral Asian road freight flows are largely concentrated around population nodes, and traffic at bordercrossing points is light. Figure 5 presents road traffic on the region’s strategic network. In urbanised areas
such as the Samarkand–Tashkent–Andijan corridor, road traffic levels can be high, with an average daily
traffic of more than 10 000 vehicles (including private vehicles). This is in line with OECD countries,
where average traffic on corridors serving densely populated areas typically ranges between 10 000 and
20 000 vehicles per day (UNECE, 2018). In remote rural areas, road traffic quickly decreases to less than
3 000 vehicles per day. Between 50% and 70% of those are trucks operating on inter-urban services. At
border crossings points, traffic volume tends to drop to 100-300 trucks a day. This suggests that roadfreight is serving mainly local markets. Official statistics confirm this, as they show that the average
shipment distance is under 100 km. It is 60 km in Tajikistan, and only 20 km in Uzbekistan.
International road transport in the region is developing fast, even if its relative share is still limited. As
road links and border crossing points are improved, an increasing number of trucks are crossing theregion’s borders. In the first decade of this century, a typical border crossing point in Central Asia would
deal with 10-30 trucks. Today, this number is ten times higher in some locations.
Rail freight has historically been serving international demand – that is, import, export and transit. Figure
6 shows that rail freight flows are high along the main economic corridors of the region. The major player
in terms of rail freight activity in the region is Kazakhstan, with over 80% of the total activity, equallingover 200 billion tonne-kilometres per year. This is due mainly to the country’s size (in terms of both its
area and its economy), but also to the importance of international traffic. Kazakhstan benefits from its
strategic location, with most of the freight originating from Europe and Asia having to transit throughKazakhstan to reach Uzbekistan, Tajikistan or the Kyrgyzstan. International traffic is further fuelled by theincreasing economic exchange between Central Asian countries.

Box 1. Dordoi and Kara-Suu Bazaars
Bazaars are place of significant economic activity in the Kyrgyzstan. The Dordoi market in Bishkek is thelargest public market in Central Asia and also among the largest in all of Asia; it consists of 15 large,
independent markets covering about 250 hectares. Kara-Suu, near Osh city, is a marketplace ofcomparable size. Both bazaars sell consumer goods imported mainly from China but also from Turkey,
the United Arab Emirates, Eastern Europe, and Russia. Although there is hawking and retailing, Dordoi
and Kara-Suu are mainly wholesale markets. They act as logistic hubs for imported merchandise and its
circulation within the country and with neighbouring republics.
The informal nature of bazaar economies makes them difficult to quantify. It is evident, however, that asignificant fraction of Kyrgyz imports are re-exported through them to neighbouring countries. In 2008,
the re-export accounted for 33% of Kyrgyz GDP. Most of the re-exported goods are imported throughshuttle trading from China and then consolidated in the bazaars for re-shipment.
The markets also generate a large number of jobs. Saumya Mitra et al. (2009) estimated that the Dordoi
bazaar accounted for more than 10% of the employed labour force of Bishkek. The employment effects
include not only people directly employed there, but also providers of logistics services.
Source: Mogilevskii (2012).

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The route from Khorgos to Astana up to the Russian border in particular has witnessed an intense
increase of activity subsequent to the opening of Khorgos dry port. Since it started operations, container
flows between Asia and Europe have increasingly been shipped by train through Kazakhstan. The transit
flow rose from 25 000 20-foot equivalent units (TEUs) in 2014 to 200 000 in 2017. With 40 billion tonnekilometres per year, international traffic represents one-fifth of the total rail-freight activity of
Kazakhstan and is increasing at over 13% per year.
Informal trade plays an important role in Central Asia. At the centre of this trade are Chinese
commodities. Notably, consumer goods such as textiles and footwear are massively imported to
Kyrgyzstan and Tajikistan by individuals by way of shuttle trade, for which these countries have special
import regimes with very low taxes. Some of these commodities are then re-exported to other countries,
typically Russia and Kazakhstan. Re-exports are extremely strong in Kyrgyzstan, where a large economy
has developed around bazaars, notably Dordoi in Bishkek and Kara-Suu in southern Kyrgyzstan, which act
as wholesale markets for re-export to neighbouring countries (see Box 1).

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Figure 5. Road traffic along Central Asia Regional Economic Cooperation (CAREC) corridors

Source: ITF estimations based on CAREC (2014) and updated with corridor performance measurement andmonitoring (CPMM) data (CAREC, 2016).

Figure 6. Rail traffic along Central Asia Regional Economic Cooperation (CAREC) corridors

Source: ITF estimations based on CAREC (2014) and updated with corridor performance measurement andmonitoring (CPMM) data (CAREC, 2016).

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Enhancing connectivity in Central Asia: challenges and opportunities
The economics of connectivity

The importance of connectivity is very high in today’s globalised economy, where value chains are
increasingly interconnected and spread out all over the world. This is particularly important for catchingup economies trying to reduce their productivity gaps with the advanced countries, because higher-techvalue chains tend to be particularly internationalised.
Connectivity can be defined as the centrality of a country to its relevant networks. As such, connectivity
reflects not only geography and the global structure of transport networks, but also trade transaction
costs – which may increase economic (as opposed to physical) distances and hence reduce connectivity(ASEF, 2016). The framework adopted in this report for measuring freight connectivity indeed accounts
for both geographical and economic distances of countries from their opportunities. It also considers
solutions to address both, since policy-makers can sometimes reduce economic distances substantially,
while physical distances remain unchanged.
Transport connectivity is fundamental to increasing Central Asia’s competitiveness. Better connectivity
promotes regional integration, reduces trade costs and increases trade volumes, thereby promoting
economic growth, social integration and development (see e.g. Rastogi and Arvis, 2014; ASEF, 2016;
OECD, 2018; Gould, 2018).
Connectivity lays the foundations for future economic growth through agglomeration effects (OECD,2015). It improves access to markets and opportunities by improving trade competitiveness and supply
chain efficiency. It also builds network resilience through improved reliability and reduced inventory
holdings. Improving connectivity can boost the productivity and growth of economies by enhancing links
within and between businesses and providing greater access to resources and to international capital
markets. Better connectivity has the potential to accelerate the integration of domestic companies into
global value chains.
The potential benefits of enhanced connectivity are well supported by the evidence. However, thesebenefits are neither unlimited nor automatic:
First, it is important to acknowledge that a landlocked location and distance to markets can be
mitigated but not eliminated. Infrastructure investments cannot relocate Central Asia on theworld map, though changes in the major centres of economic activity can and will shift its
location in terms of economic geography (OECD, 2014, pp. 56-62). The evidence does notsupport the view that the economic significance of distance is declining (Boulhol et al., 2008),
despite many clichés about globalisation suggesting the contrary.



Second, realising the benefits of enhanced connectivity in full measure will require progress inaddressing other structural reform challenges, particularly in terms of strengthening
competition, entrepreneurship and private-sector development (for an overview, see OECD,2018).

Hard infrastructure and soft policies for better connectivity

Transport systems are a production factor and one of the main determinants of facility location
decisions. Transport infrastructure has a significant impact on the productivity and the cost structure ofprivate firms. Global production networks depend on transport operations, and this dependency affects

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a wide array of value-added activities along supply chains from suppliers of raw materials to the enduser, involving also the recycling of materials after use.
That said, infrastructure quality is not the whole story. Significant non-physical, “soft” barriers – such as
delays at ports and borders, inefficient customs procedures, redundant clearance procedures and theabsence of standard documents – all have a negative impact on global trade. Some analyses find thatremoving these barriers would have a greater impact on economic growth and competitiveness thanremoving tariffs (Ferrantino et al., 2013).
The general quality of the logistics sector – including transport infrastructure, customs procedures,tracking and tracing services as well as logistics competencies – is another important constituent ofconnectivity and is positively associated with increases in trade (Arvis et al., 2014). National logistics
performance is linked to a number of factors including legislation, international agreements, hauler andshipper performance and technology. Inadequate infrastructure and poor logistics services increasetransport costs and delivery times. Along with remoteness, they are major determinants of a country’s
ability to participate in the world economy (ITF, 2016).
High-quality infrastructure is a precondition for the provision of efficient transport services for bothfreight and passenger movements. These, in turn, support core economic activities and reduce
geographic barriers to competition. Well-functioning logistics systems facilitate trade by lowering thecost of access to international markets and by improving the competitiveness of domestic firms (Arvis etal., 2014). Infrastructure investment can be an effective policy tool to address social and territorial
imbalances by connecting rural and remote areas to larger centres of production and consumption,
creating more economic opportunities for residents and reducing out-migration.
Improving freight transport can enhance competitiveness in several ways: by reducing transit times,
increasing the reliability of shipments and lowering costs. Reducing freight and logistics costs allows
companies to produce more with fewer resources, become more competitive and lay the foundations
for business growth and expansion (FHWA, 2015; Gould, 2018).
Overall, more co-operation among countries along corridors can significantly enhance the potential
benefits of transport investment (Gould, 2018). When planning investments, countries should not only
look at the impact of the investment on access to neighbouring countries. A closer collaboration andjoint planning between countries is crucial in order to enhance connectivity and hence competitiveness.
Such collaboration is equally important when it comes to “soft” policies that can also improve tradelogistics and competitiveness. Trade facilitation does not always require investment in hard
infrastructure; standardisation of procedures across supply chains can also reduce trade costs effectively.
Efficient border management is critical for eliminating avoidable delays and enhancing predictability inborder clearance.
Connecting Central Asia to global value chains

Trade patterns are shifting as the world’s economic centre of gravity moves east. Recent years have seen
increasing restrictions on trade. The global outsourcing model seems to have come to a halt andmanufacturing is becoming more regionalised. Still, growth in global external trade is expected tocontinue to outpace GDP increases in coming years, albeit by a smaller margin than before. Projections
see freight volumes (in tonne-kilometres of goods moved) increase four-fold by 2050 and spatial tradepatterns shift. Trade between China and the European Union will grow significantly, but intra-Asian trade
will also increase rapidly as emerging economies move up in the global value chains, impacting
production and consumption patterns. China’s ambition to developing its western provinces is providing
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another important opportunity for Central Asian countries to connect to global value chains (ITF, 2017;
OECD, 2016; EDB, 2018).
Central Asian countries export mainly raw materials and energy products. Their principal markets are
Western Europe, China and the Russian Federation (Rastogi and Arvis, 2014). Given its central location,
the region is supporting a growing transit trade between Europe and Asia, however. The relocation of
production centres in China to sites further away from the coast has encouraged the development ofland links between Asia and Europe. The revitalisation of the Silk Road, for instance, aims to connect Asia
and Europe and all the major markets in between. New surface links could complement the current
modal mix as an intermediate option in terms of price and speed between air and maritime transport. At
the same time, they could enable landlocked countries to connect with global supply chains andgenerate new investments into strategic logistic hubs.
The market potential for such new routes is not yet fully evident. However, they are likely to have effects
on maritime and air transport and redefine the optimal role of each mode. A number of companies havestarted to make use of the advantages offered by the trans-Eurasian transport corridors, and railway
container traffic between the European Union and China in particular is expected to increase (EDB,2018).
Developing a rail link that crosses many borders and passes through mountainous areas or deserts is adifficult task. Transport and logistics in Eurasia are characterised not only by physical barriers andinfrastructure gaps between countries with poor transport infrastructure, but also by non-physicalbarriers related to the absence of harmonised laws or efficient customs procedures. Improving surface
transport, in terms of travel time and reliability, requires co-ordination between all stakeholders,countries, shippers and logistics specialists. The question of trust – among the various logistics partners,
and between the transport provider and its customers – is also key to the success of new services.
The growth potential of the region and the integration of the Central Asian countries into global value
chains depend not only on international connectivity, but also on how national connections function.
Most of Central Asia is characterised by low average population density. This low density results inlimited opportunities (potential) to realise so-called “agglomeration economies”3 (see Box 2) or toachieve the critical mass needed to benefit from scale economies in key tradable sectors.
It is here that the connectivity agenda connects most directly with the structural reform challenges
facing Central Asian states, particularly regarding competition. Low density of settlement and long
distances to major markets serve to weaken competition. Consumers (whether of intermediate inputs orof final goods) have less choice of potential suppliers and fewer opportunities to enhance productivity by
benefiting from agglomeration economies than they would in larger, denser economies. These two
factors are mutually reinforcing: large market size makes it possible to realise economies of scale without
undermining competition. Longer distances and concomitant higher transport costs have two major
implications for tradable producers in geographically remote regions; both reflect the role ofcompetition:Constraints on accessibility constitute a form of protection for producers. Other things being
equal, local producers enjoy a competitive advantage since would-be importers face higher
transport costs. Other factors often overwhelm this advantage, however, since local producers
in a small, low-density market may not be able to realise the economies of scale and scopeneeded to compete with imports. Even if they do, the result is likely to be higher prices for local
consumers, including both households and firms reliant on locally produced inputs.

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Long distances and high transport costs make it harder for local producers to export to larger, externalmarkets. To export, they need a productivity advantage great enough to offset the higher transport
costs. Being as good as their rivals is not good enough; they have to be better. Otherwise, they may havelittle incentive to innovate and increase productivity, and little opportunity to increase output andemployment. Firms oriented towards such distant markets need to achieve this productivity edge in spiteof the costs outlined above – specifically the weak competition (among input suppliers and providers of
non-tradable services), which raises the input costs for would-be exporters of tradable goods.
Box 2. Agglomeration economies
The mechanisms that make it beneficial for firms and workers to be located close to each other are often
summarised under the term agglomeration economies. Three main mechanisms work to produce them:
1. Sharing mechanisms for:

Indivisible facilities, such as local public goods or facilities that serve several individuals or firms.
Some examples, other than public goods, are facilities such as laboratories, universities andother large goods that do not belong to a particular agent but where some exclusion is implicitin their provision.

The gains from the wider variety of input suppliers that can be sustained by a larger final goods
industry. In other words, the presence of increasing returns to scale, along with forward andbackward linkages, allow firms to purchase intermediate inputs at lower costs.



Gains from the narrower specialisation that can be sustained with higher production levels.
Several firms specialise in producing complementary products, thus reducing overall production
costs.



Risks. This refers to the idea that an industry gains from having a constant market for skills. If
there are market shocks, firms can adjust to changes in demand if they have access to a deep
and broad labour market that allows them to expand or contract their demand for labour.

2. Matching mechanisms by which:Agglomeration improves the expected quality of matches between firms and workers, so bothare better able to find a good match for their needs.

An increase in the number of agents trying to match in the labour market also improves theprobability of matching.



Delays are alleviated. Contractual problems arising from renegotiation among buyers andsuppliers may result in one of the parties losing out to the other party in a renegotiation.
However, if the agglomeration is extensive enough, agents can find an alternative partner.

3. Learning mechanisms based on the generation, diffusion and accumulation of knowledge. This refers
not only to the learning of technologies, but also to the acquisition of skills.
Metropolitan regions in OECD countries benefit from agglomeration effects and tend to display higher
levels of productivity, of employment and GDP per capita than other regions. These benefits, however,are limited by congestion costs, diseconomies of scale and oversupply of labour, among other potential
negative factors. Many metro regions have in recent decades underperformed national economies.
Source: Duranton and Puga (2004).

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Taken together, these two factors imply that elevated transport costs reduce the scope for specialisationaccording to comparative advantage. This is one of the critical drivers for gains from trade, however.
While low-density places often have lower prices for land – and thus for many non-tradables and spaceintensive activities – prices for other goods and services may be higher than otherwise, owing to weakcompetition. This is especially the case where high transport costs and the potential for suppliers toengage in price discrimination may more than offset the impact of low prices for land and non-tradables.
There are two important policy implication of this analysis:
First, the costs of policies and regulations that impede competition are likely to be higher forCentral Asian economies than they would be in many OECD countries. They will rise asconnectivity improves.4

Second, improved connectivity amounts to a reduction in trade protection and exposes local
producers to more outside competition. If domestic conditions for doing business are not
improving, they may exit the market rather than expand.

The link between two of Central Asia’s greatest challenges – connectivity and diversification – thus runs
both ways: On the one hand, diversification in the comparatively small economies of Central Asia
requires an external orientation: they are simply too small to focus on the home market, and they can
only hope to achieve critical mass in a limited number of exporting sectors. Successful diversification willthus require better connectivity. On the other hand, reaping the full benefits of greater connectivity
necessitates improvements in the business environment and better policies for supporting innovation,
entrepreneurship and the emergence of new economic activities.
In order to enhance connectivity, governments have defined various national development strategies(see Chapter 4 for more details). In addition to these national strategies, regional plans have been set up,of which the CAREC Program is the most comprehensive. CAREC focuses on identifying the main
corridors for long-term investments (CAREC, 2017; CAREC, 2018). In these plans, governments have set
physical connections as a priority. However, trade and transport policies should focus on a broad set ofpolicies to compensate for the consequences of being landlocked and far away from main markets.

An evidence-based framework for strategic connectivity planning
Assessing the impact of transport infrastructure on connectivity is complicated. Many traditional
measures provide only a limited view of the economic value of improved connections. This is not least
because they often neglect economic and regulatory factors that affect the returns on investment inconnective infrastructure. The analysis in this section will thus cover policies and regulatory frameworks
as well as questions related to hard infrastructure. The analyses applied to assess connectivity andinfrastructure needs in Central Asia comprise:a top-down, quantitative modelling approach based on the ITF International Freight Model;

a bottom-up, benchmarking approach based on data collection and analysis across countries;a qualitative transport policy assessment review.

The analysis is supported by a review of the literature, interviews with key stakeholders (across all
sectors), and information collected during fact-finding missions to all five countries.

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The ITF International Freight Model

The ITF’s International freight model is designed to project international freight transport activities (intonne-kilometres) for 19 commodities for all major transport modes and routes, while taking into
account different transport and economic policy measures (e.g. the development of new infrastructure
networks, or the alleviation of trade barriers). The model is built as a four-step freight transport model
approach and uses the OECD’s regional trade projections as an input. The model converts trade flows inmonetary terms into freight volumes. More specifically, the model is designed to estimate the weight ofcommodities traded between countries or regions; the choice between modes and transport routes used
to transport these commodities, based on transport-network characteristics such as capacity and speed;
and variables such as transport costs and time.
Some components of the ITF International Freight Model (notably the freight-transport infrastructure
network and world spatial discretisation) are used to calculate the connectivity gaps facing Central Asian
countries and to compare them with other countries. The methodological approach for measuring
connectivity is a gravity-based model which measures how many opportunities (defined in terms of theshare of global GDP) can be reached from each country relative to other countries. The model includes
four explanatory variables: distance, transport cost, travel time and border crossing time.
The model is further used to assess the presence of capacity constraints and future infrastructure needs
based on projected trade volumes up to the year 2050. In the flow of international trade, the quality oftransport infrastructure plays a crucial role, together with efficient administration and cross-borderprocedures. Well-maintained and well-managed logistics facilities, highways, airports, rail links andrelated services connect trading partners and reduce transport costs. A large body of literature relies on
econometric analysis of historical trends to establish a relationship between infrastructure provision and
GDP growth. The ITF International Freight Model makes it possible to move beyond historical
relationships between transport infrastructure and growth. It includes detailed data on existing
infrastructure capacity and all planned capacity improvements. This enables the analysis of future
infrastructure capacity constraints and needs in light of projected growth in GDP and trade. The model is
described in detail Annex 1 of this report.
Benchmarking indicators

Benchmarking indicators provide the most useful and balanced information where a set of indicators isused, rather than a single indicator. Performance indicators can play a key role in guiding policy,
quantifying objectives and measuring progress but are open to misunderstanding. A best-practice
approach would involve a set of indicators that encompass measures of both supply (network physicalsize, asset quality) and demand (measures of traffic, user satisfaction) as well as externalities(environmental emissions and other external costs).
The available data for Central Asia has major gaps. The number of indicators is thus limited by theavailability of comparable data across dimensions and countries. This complicates international
comparisons, as does the lack of commonly agreed definitions and methods. Data collection for thisreport thus focused on assembling a comprehensive set of benchmarking indicators across Central Asian
countries and regions, ensuring that the data chosen are comparable and derived from reliable sources.
The transport infrastructure characteristics can be assessed against a number of comparators (seeChapter 3 for more details on data used in this analysis).

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Qualitative transport policy assessment framework

The qualitative transport policy assessment framework developed by the ITF aims at advancing policies
that foster good planning, effective governance and regulations while ensuring the sustainability of thetransport system. It encompasses three sub-dimensions:
Planning: The sub-dimension on planning measures the extent to which an orderly, coherent, consistentand transparent process is in place for developing transport policy and infrastructure. Good planning isessential to ensuring that transport spending, including investment and maintenance, contributes toachieving national goals. Without a clear and transparent process for identifying, prioritising anddelivering projects, Central Asian economies risk implementing projects that do not provide good value
for money from limited funds available. Good approaches to planning involve ongoing monitoring toensure that outcomes predicted before a project’s implementation are realised, and if not, that
improvements are made for the development of future projects.
Governance and regulation: The sub-dimension on transport governance and regulation measures how
well transport infrastructure and networks are regulated and operated. It focuses on road and rail
markets. Good governance is critical to sustain the competitiveness of the transport sector and thus
economic growth. On the one hand, stable and transparent governance frameworks provide thecertainty necessary to attract investment and implement strategies. On the other hand, appropriate
regulatory intervention ensures that transport markets operate efficiently and safely. Harmonisation is aprecondition for further regulatory advances. Among these are: ensuring the cost-relatedness of
infrastructure charges across all modes, providing market access opportunities for new entrants topromote competition, and regulating externalities.
Sustainability: The sub-dimension on transport sustainability measures progress towards resource
efficiency, environmental protection, reduction of health impacts and increased transport safety. Greentransport policy plays an increasing role in policy formulation in OECD countries, driven by environmental
concerns and sustainability objectives. In a Central Asian context, considerable productivity gains are
possible by increasing road transport. In the long run, however, negative externalities in terms of local
pollution and other undesired impacts are high (OECD, 2012). Transport safety also belongs in this subdimension. Transport infrastructure can only be sustainable if it reduces negative health impacts.
Logistics is also included here, since a well-functioning logistics domestic and international chain is both anecessary precondition of national competitiveness and improves the efficiency of the freight sector.
Chapter 4 contains more details on the qualitative transport policy assessment framework.

Notes

1.

Transport Corridor Europe-Caucasus-Asia.

2.

The Central Asia Regional Economic Cooperation (CAREC) programme is a partnership of 11 countries and six multilateraldevelopment partners working to promote development through cooperation. Members include the former Soviet republics of

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Central Asia (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan) as well as Afghanistan, Azerbaijan, China, Georgia,
Mongolia and Pakistan.
3“The diverse mechanisms that make it beneficial for firms and workers to be located close to each other are often summarised
under the name “agglomeration economies”. They are primarily concerned with (1) the sharing of place-based public goods(services, infrastructure, input/factor markets, and such abstract public goods as network complementarities); (2) better matchingin labour and product markets; and (3) learning based on the generation, diffusion and accumulation of knowledge. For moredetail, see Duranton and Puga, 2004.

4

This is consistent with the so-called Frieden-Rogowski hypothesis, which holds that an exogenous reduction in trade costs should
increase both the costs of continued protection and the pressure for trade liberalisation from sectors able to compete globally(Frieden and Rogowski, 1996).

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Arvis, J.-F., L. Ojala, B. Shepherd, D. Saslavsky, C. Busch, A. Raj (2014), Connecting to Compete 2014:
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Gould, D.M. (2018), Critical Connections: Promoting Economic Growth and Resilience in Europe andCentral Asia. Europe and Central Asia Studies. Washington, DC: World Bank. World Bank.
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Martinez, L., J. Kauppila and M. Castaing Gachassin (2014), "International Freight and Related CO2
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Mogilevskii, R. (2012), "Re-export Activities in Kyrgyzstan: Issues and Prospects", University of Central
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2. Connectivity in Central Asia within the
global transport system
The connectivity needs of Central Asia will be affected by global as well as intra-regional changes in how
goods and people are transported. To improve regional connectivity, facilitate trade and accelerate
economic growth, the countries of the region are building new infrastructure, improving border crossing
services and developing logistics.
At the same time, the soft and hard infrastructure priorities of the governments of Central Asia will be
influenced by uncertainties at the global level, from the rate of change in trade volumes and patterns via
the costs of different transport modes, to the impact of technological disruption. It is therefore
imperative that the connectivity strategies of Central Asian governments are informed by evidencebased analysis and forecasting, taking into account and mitigating to the extent possible the uncertain
consequences of the changes that continue to take place across this dynamic region.
The ITF International Freight Model was used for this study to test several scenarios and explore how
major Central Asian connectivity strategies could interact with developments beyond the control ofgovernments, such as changes in global freight patterns. The model provides estimates showing howchanges in trade at the global, regional, and national levels affect regional connectivity, transit flows, andinfrastructure needs, and how these changes can be accommodated to harness future growth (see Box
3; also Annex 1).
In the scenarios tested in this chapter we vary the baseline year (2015, 2030, and 2050), maritime cost(remaining the same or increasing due to the introduction of a global carbon tax), and measures aiming
at enhancing connectivity (improvements of hard and soft infrastructure). The hard infrastructure
measures tested include the building of new roads and railways as well as the expansion of existingroads. The soft measures are represented by shorter border-crossing times. Strategies other thanenhancing infrastructure and reducing border crossing times exist, of course. However, the analysis
presented in this chapter shows that these two measures may provide substantial gains in connectivity.
This chapter presents global trade and freight projections and summarizes the largest transport projects
planned for the Central Asian region. It provides an overview of the framework used to assessconnectivity and infrastructure needs, then presents the results of the analysis – including connectivity
indicators, identification of infrastructure bottlenecks, and changes in traffic flows for different scenarios.

Box 3. Modelling framework for long-term global trade scenarios
The OECD’s ENV-Linkages Computable General Equilibrium (CGE) model is an economic model that
describes how economic activities are inter-linked across several macroeconomic sectors and regions. It
links economic activity to environmental pressure, specifically to emissions of greenhouse gases (GHGs).
The links between economic activities and emissions are projected for several decades into the future(currently until 2060).
It is a global economic model built primarily on a database of national economies. Each of the regions isunderpinned by an economic input-output table, which is usually obtained from national statistical

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agencies. These tables quantify economic flows across the different economic agents, including
purchases of intermediate products and primary factors in all industries and the associated production
outputs, as well as sources of income for households and governments and the associated consumption
expenditures. All production in ENV-Linkages is assumed to operate under cost minimisation, with anassumption of perfect markets and technologies that exhibit constant returns to scale.
World trade in ENV-Linkages is based on a set of regional bilateral flows. The model assumes thatimports originating from different regions are imperfect substitutes. Therefore, in each region, total
import demand for each good is allocated across trading partners according to the relationship between
their export prices. This implies that each region faces a reduction in demand for its exports if domestic
prices increase. All monetary flows are expressed in constant USD, using purchasing power parities as
exchange rates for national currencies. The use of purchasing power parities rather than market
exchange rates ensures that also the price developments of non-traded commodities are taken into
account when projecting economic developments of multiple regions.
The model has been applied to provide baseline and policy scenario projections in the OECD’s
Environmental Outlook to 2050: The Consequences of Inaction (OECD 2012).
Source: Château et al. (2014).

Underlying trade and freight projections
Global trade patterns are shifting

Population and income growth will increase future global demand for goods and services. The world’s
population will reach nearly 10 billion people by 2050, with an additional 2.4 billion urban dwellers
compared to 2015 (United Nations, 2014). The underlying projections for GDP growth suggest
continuous growth, albeit at lower levels than in the past. World GDP is projected to grow at an annualcompound rate of 3.5%. Non-OECD countries will contribute to the global growth, although at a lower
level than expected (OECD, 2018; OECD/ITF, 2017).
In recent years trade restrictions have increased, and there is now a tendency to prefer bilateralagreements over multilateral trade accords. The global outsourcing model is showing signs of its
limitations and manufacturing has become more regionalised. World trade has slowed down both inabsolute terms and relative to GDP. Trade is still projected to grow, but at an annual rate of 3.5% –significantly slower than the nearly 7% annual average since 1990. Increased protectionism and tariff
hikes, as well as uncertainties regarding emerging economies, partly explain the slowdown. Economies
are also moving up in the value chain, resulting in an increase in the domestic value-added component ofexports. Physical limitations on the fragmentation of global value chains also exist, and there is evidence
that global supply chains are consolidating (OECD, 2016; Fontagné and Fouré, 2013).
The geographic shift in trade patterns will reflect regional income convergence, future changes in
consumption patterns, and relative productivity. Thanks to rapid economic growth, Asia and Africa will
substantially increase their share of global trade after 2030, resulting in large market potential with low
production costs. The Transition region (including Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan)shows less growth, yet more than doubles the trade value. In parallel, trade within the euro area willgrow less fast and some OECD countries will see their trade share drop slightly. The increased role ofemerging economies will lead to the reorganisation of the relative importance of different trading

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partners. Trade within the OECD area will halve, while trade among non-OECD economies will more thandouble.
Figure 7. Value of trade by region(USD billion, 2004)
AfricaMiddle East

Asia
North America

EEA + Turkey
OECD Pacific

Latin America
Transition

60000
50000
40000
30000
20000
10000
0

2015

2030

2050

Source: ITF based on OECD ENV-Linkages model (Chateau et al., 2014).

Economic projections are also characterised by changes in the structure of the economy. Emerging anddeveloping countries will see sizeable increases in their manufacturing market shares at the expense ofOECD economies. However, there will not be a total shift of industrial activities away from OECD
countries, as trade costs in specific industries will remain high. Fast-growing emerging economies will
shift from low-skilled manufacturing towards services and industry as incomes and living standards
converge with more advanced economies. The resulting changes in consumption and domestic demand
will influence their industrial structure. Material use will also likely decouple from economic growth dueto the increasing share of services and changes in production technologies (OECD, 2018).

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Figure 8. Value of trade by commodity(USD billion, 2004)
Agricultural, hunting and forestry products
Metal, other mining products except machinery and equipments
Textiles and textile products
Chemicals, rubber and plastic
Transport equipment
Other manufacturing

Coal, gas and oil products (refined and crude oil)Food products, beverages and tobacco
Other mineral productsElectronic devices

60000
50000
40000
30000
20000
10000
0

2015

2030

2050

Source: ITF based on OECD ENV-Linkages model (Chateau et al., 2014).

Changes in trade will have significant effects on route choices

Global value chains are central to economic development. They are dependent on relatively inexpensive
but reliable transport links, among other factors. Freight transport is a derived demand, directly
dependent on the trade of commodities. Changes in trade and manufacturing specialisation will
potentially have significant effects on global supply chains. Transport activity is inseparably intertwinedwith international production and consumption patterns and their evolution, including changes in thelocation choices of multinational companies. The location of global production and consumption, and thestructure of trade in terms of the nature of goods trade and transport costs, all influence the volume of
freight as well as the related mode and route choice.
To understand the future evolution of freight flows, the ITF’s International Freight Model was applied inthis study (see Box 4). Under the baseline projections of the ITF International Freight Model, the growth
in international freight volume is far from uniform, being significantly stronger along maritime routes andinland connections in Asia. The North Pacific corridor facilitated the highest volume of international
freight flows in 2015; this was due mainly to the high volume of international trade from China to theUnited States. As Figure 9 shows, it is estimated that the volume of freight in the North Pacific corridor
will increase significantly by 2050. A significant increase in freight volumes is also projected to occur in
the Indian Ocean – mainly from China to Europe through the Suez Canal. The increase in trade between
Europe and Asia is also responsible for the dynamics of the Mediterranean corridor.
Increasing trade will also bring about an increase in the volume of intra-regional freight flows by road orrail within continents. The highest growth will occur in Asia and Africa, in line with the projections forGDP. Intra-Asian tonne-kilometres grow, in the baseline scenario, by a factor of 4.5, while in Africa thisgrowth factor is 6.5.

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Box 4. The ITF International Freight Model
The International Transport Forum’s (ITF) International Freight Model projects international freighttransport activity and related CO2 emissions up to 2050 based on global trade projections. The model has
seven main components, each feeding into the subsequent calculation:










A general equilibrium model for international trade, covering 26 world regions and 25
commodities, of which 19 require transport.
A detailed global freight transport network model, including capacity information based on thelatest available data.
Over 400 global centroids representing the main production and consumption centres of theworld.
A model to convert trade in value into weight in tonnes using Eurostat and ECLAC data andnetwork costs as a proxy indicator between centroids. The transport cost performance for eachorigin-destination (OD) pair is defined by a logsum cost estimation. Because each commodity
has a different sensitivity to price, the lower the logsum value falls, the greater the conversionof trade value into freight tonnage is.
An international freight mode choice model calibrated using Eurostat and ECLAC data for eachcommodity and transport mode. The model splits the estimated trade weight between
centroids into different transport modes. The main mode is designated by the longest routecomponent (i.e. sea has always some access and egress travel, either by road or by rail).
Assignment of the freight volumes to the transport network using a combination of an
equilibrium model and a route choice model. The latter is applied for the maritime port
selection to accelerate convergence.
CO2 intensities and technology pathway by mode.

The final outputs of the model are freight tonnes and tonne-kilometres by transport corridor, by mode,and by commodity as well as related CO2 emissions.
The model has been refined and validated for the Central Asian region with updated information on
production and consumption centroids, transport networks and their performance as well as freight
volumes.
See Annex 1 for a detailed description of the model.
Source: Martinez et al. (2014).

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Figure 9. Global freight projections by 2050

Source: ITF (2016).

Several investment plans have been made to improve regional freight connectivity

Central Asia’s international trade volumes rose rapidly from 2005 to 2015. According to UN trade data
(UN Comtrade Database, 2018), Kazakhstan’s total export grew 1.7 times and total import grew 1.8
times, while trade with China grew 2 times for export and more than 4 times for import. For Kyrgyzstan
the corresponding numbers are nearly 4 times for total import and 2 times for total export, while theimport from China grew 10 times. In Mongolia the total import increased 3 times and the total export 4
times, and with only China 5 and 8 times, respectively. The trade growth slowed down in 2016 but hascontinued up until now. The region exports mainly minerals, mineral oils and products of their
distillation, while its imported goods are mostly machinery and mechanical appliances.
Transit through the countries has also grown steadily. In Kazakhstan, for example, from 2015 to 2016
revenues from international transit rose 40% to USD 700 million. Similarly, Mongolia has a uniquelocation between Russia and China such that almost 90% of freight between these two countries iscarried by Ulaanbaatar Railways through Mongolian territory; in 2016, Ulaanbaatar Railways transported
2.3 million tonnes of transit cargo, which was around 15% more than in 2015 and which accounted for
25% of the country’s overall transport revenues.
The growth of trade and transit traffic as well as revenues has stimulated the countries to improve andexpand their infrastructure by means of national projects and participating in international programmes.
National projects

In Kazakhstan in November 2014, President Nursultan Nazarbayev announced a USD 9 billion five-yearplan (“Nurly Zhol”) to develop and modernise roads, railways, ports, IT infrastructure, and education andcivil services in the country, the overall goal being to turn Kazakhstan into a key Eurasian transport andlogistics hub. Approximately USD 2.2 billion has been allocated under Nurly Zhol to improve highway

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quality. In 2015-2018 the overhaul of 867 kilometres of railway tracks was completed, 2 400 kilometresof national roads were constructed and reconstructed, and 7 500 kilometres of roads were repaired.
According to the plans, in 2020, toll roads will cover approximately 6,600 kilometres. Along majorinternational corridors 260 road side facilities are planned to be constructed and upgraded by 2020,
including motels, filling stations, parking spots, retail shops, etc. The plan includes implementation of theintellectual transport system, which will consist of video monitoring, road traffic management systems,
and systems to inform drivers about road conditions and collect e-payments for transport services.
Kyrgyzstan plans to build and expand its internal network of highways through the construction of analternative North–South highway and the reconstruction of the Bishkek–Osh, TyupKegen, Bishkek–
Naryn–Torugart, Kochkor–Aral, and Osh–Batken–Isfana–Khujand highways. The construction of theinternational Balykchy–Karakol road and the Tyop–Kegen highway will continue. The strategic goal in therailway industry is the creation of a unified railway network connecting currently detached northern andsouthern sections of the national railways. The country has tentative plans to continue negotiations on a
project to build a section of the transnational China–Kyrgyzstan–Uzbekistan railway.
Numerous road projects are currently developing in Mongolia aimed at connecting different parts of thecountry. Those include reconstruction work for 345 km of the Ulaanbaatar–Altanbulag road, as well as
the so-called West and East corridors crossing the country from the north to the south. The Mongolian
government action plan for 2016–20 includes roads from Ulaanbaatar to provincial capitals, with a total
length of 5100 km. In 2018, 904 km of roads to provinces Bayan–Ulgii, Khovd, Uvs, Govi-Altai andZavkhan were under construction. The country also plans a massive expansion of its railway network thatwill connect mainly major mining sites with the centre and with the country borders.
Tajikistan is mostly rehabilitating its roads. The country recently finished rehabilitating the Dushanbe–
Kyrgyzstan border road, the Dushanbe–Tursunzade–Uzbekistan border road, and the Dushanbe–Kulma–
Chinese border road. Numerous other road-rehabilitation projects are ongoing, and others arescheduled for construction by 2020. Most of these roads connect Dushanbe and other cities of Tajikistanwith the border crossing points of China, Afghanistan and Central Asian neighbours. Implementation oftransport projects in Tajikistan and Kyrgyzstan is especially complicated because most of the roads aremountainous, which means tunnels will be required and construction and maintenance will take place inadverse conditions.
In 2015 Uzbekistan announced a plan for 2015–19 to develop and modernise its national transport
infrastructure through the implementation of 150 projects. In terms of railway transport, the planned
implementation of 13 development and electrification projects includes the Angren–Pap, Maroqand–
Qarshi, Qarshi–Termez and Maroqand–Bukhara rail lines. The plan envisages measures to build andrehabilitate roads and railways, logistic centres and communications. The country also plans to develop a
920-km route going from Uzbekistan through Kyrgyzstan to China (Andijan–Osh–Irkeshtam–Kashgar).
Road haulage along this route began in February 2018. Despite the unstable political situation in
Afghanistan, Uzbekistan railways regularly transport cargo to this country and intend to participate in theconstruction of the Mazar-i-Sharif–Herat railroad (the so-called Trans-Afghanistan Corridor).
Implementation of this project will in turn permit the construction of two strategically important routes
connecting seaports in Iran (port Chabakhar) and Pakistan (port Chaman).
International programmes

Several transport-corridor projects are currently in progress in Central Asia, their collective aim being toboost regional development and integration. They are designed to provide the infrastructure necessary
to ensure high levels of transport connectivity and enable the integration of different modes of

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transport. Table 2 summarises the main ongoing projects involving the development of transport
corridors in Central Asia.
Table 2. Current and planned transport corridor projects in Central Asia
Project name

Investments(USD billions)

Countries or continents

Belt and Road Initiative (BRI)

900–8 000*Europe, Asia, Africa

Central Asia Regional Economic
Cooperation (CAREC) Program

31.5**

Afghanistan, Azerbaijan, People's Republic of China, Georgia,
Kazakhstan, Kyrgyzstan, Mongolia, Pakistan, Tajikistan,
Turkmenistan, Uzbekistan.

Transport Corridor EuropeCaucasus-Asia (TRACECA)

0.16**

Armenia, Azerbaijan, Bulgaria, Georgia, Kazakhstan, Kyrgyzstan,Iran, Moldova, Romania, Turkey, Ukraine, Uzbekistan, Tajikistan,
Turkmenistan, plus the member states of the European Union.

75.6*

Afghanistan, Armenia, Azerbaijan, Bangladesh, Belarus, Bhutan,
Brunei, Cambodia, China, India, Indonesia, Iran, Kazakhstan, Laos,
Mongolia, Nepal, Pakistan, South Korea, Russia, Sri Lanka,
Tajikistan, Thailand, Turkey, Turkmenistan, Uzbekistan, Vietnam.

Trans-Asian Railway (TAR)

Note: * – planned investments; ** – has been invested.

The largest initiative is the Belt and Road Initiative (BRI) announced in 2013 by the Chinese President Xi
Jinping during his visit to Kazakhstan. In 2017 the initiative was officially launched at the Belt and Road
Forum for International Cooperation in Beijing and was incorporated into the Chinese constitution,
codifying its position as a primary foreign policy goal of the president. The stated aim of the project is thecreation of new infrastructure and the revitalisation and expansion of trade and economic growth acrossAsia and beyond. After initially focusing on energy and infrastructure, the project later expanded toaddress trade, manufacturing, the Internet and tourism.
Figure 10 displays the currently proposed BRI corridors. It has two main segments. The first is the Silk
Road Economic Belt, which includes land corridors connecting China with different parts of Asia, theMiddle East and Europe. The second is the 21st Century Maritime Silk Road, a sea route linking Asia,
Africa and Europe.
Some of the projects have been fully or partially implemented. These include, for example, the ChinaPakistan Economic Corridor (CPEC), which also demonstrates the BRI’s scope in that it combines
infrastructural and industrial development with physical and telecommunications connectivity. As a BRI
corridor, CPEC will link Pakistan with the land and sea corridors to the rest of Asia, Europe, and Africa.
CPEC allows China to create an alternative to shipping via Singapore and the Melaka Straits (Deloitte,2018). The corridor was launched in 2014 and related projects are scheduled for completion by 2022.
The corridor potentially benefits the Central Asian countries by shortening the path to the maritime
routes and, therefore, improving the region’s overall connectivity.

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Figure 10. Belt and Road Initiative corridors

Source: Mercator Institute for China Studies (2018). Available on https://www.merics.org

Several railroad connections have been completed under the BRI in the Central Asian region. These
include Pop–Angren in Uzbekistan; Uzen–Bereket–Gorgan traversing Kazakhstan, Turkmenistan, andIran; and Khorgos dry port in Kazakhstan, connecting China and Kazakhstan. The China–Kyrgyzstan–
Uzbekistan railroad has been under discussion for almost 20 years as the countries have not yet agreed
the exact route that would benefit them all.
Additionally, China, Kyrgyzstan and Uzbekistan have recently launched a highway connecting the three
countries. In Tajikistan, China has invested in a 350-km Dushanbe–Chanak highway connecting thecapital with the north of the country.
The Central Asia Regional Economic Cooperation (CAREC) program is the most comprehensive regional
development strategy for the Central Asian region, focusing on identifying key corridors for long-term
investments (CAREC, 2017; CAREC, 2018). The CAREC Program is a partnership of 11 countries anddevelopment partners working together to “promote development through cooperation, leading toaccelerated economic growth and poverty reduction”. Begun in 2001, the program currently has a longterm strategic framework that extends through 2030. The strategy aims to “connect people, policies andprojects for shared and sustainable development, serving as the premier economic and social
cooperation platform for the region” (CAREC official website, 2018). The program has evolved from six
projects in 2001 to 185 projects by the end of 2017, and currently has more than USD 31.5 billion
invested in its projects. CAREC prioritises work along five operational clusters representing areas ofcooperation: Economic and Financial Stability; Trade, Tourism, and Economic Corridors; Infrastructure
and Connectivity; Agriculture and Water; and Human Development. The Transport dimension is a part of
the Infrastructure and Connectivity cluster.
CAREC’s infrastructure plans include the construction of new links and renovation of existing ones along
the six regional economic cooperation corridors (Figure 11). The corridors partially replicate the BRI plans,with a more detailed network at the regional level. Corridor 4 is a part of the BRI route passing from
China to Europe through Mongolia and Russia. Corridor 2 represents the shortest route from China toEurope and replicates the part of the BRI route going from Urumchi to the West through Kazakhstan

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CONNECTIVITY IN CENTRAL ASIA WITHIN THE GLOBAL TRANSPORT SYSTEM(section 2c in Figure 11) and Tajikistan (section 2d). Another BRI corridor going from China to the Westthrough Kyrgyzstan is represented by Corridor 1. Similarly to the BRI, CAREC plans to connect the Central
Asian transport network with maritime routes through the territory of Pakistan.
Figure 11. CAREC regional economic cooperation corridors

Source: CAREC (2018).

Both the BRI and CAREC initiatives overlap with the historical Silk Road and are intended to facilitate themovement of people and goods between China and Europe; as such, they inherently affect theconnectivity of the countries lying along the route. The proposed routes partially rely on existing
infrastructure such as sea ports and highways, often implying their extension and renovation in order toaccommodate increasing trade flows and provide competitive routes for regional and global
stakeholders. CAREC’s choice of potential routes also takes into account the outcomes of traffic demandmodels created for the region. Most of the current national plans in the region coincide with the CAREC
plans.
Other large transportation projects in the region are TRACECA, the Trans-Asian Railway and the Great
Asian Highway. The latter two were initiated in the 1950s and were restarted in 1992, becoming pillars of
the Asian Land Transport Infrastructure Development project, which was endorsed by the United Nations
Economic and Social Commission for Asia and the Pacific (UNESCAP). The projects target thedevelopment of the railway and highway networks as part of UNESCAP’s overall goal of developing aninternational, integrated, intermodal transport and logistics system in the region.
TRACECA is a multi-mode transportation corridor project developed by the European Union in order tointegrate the continents of Europe and Asia. Four countries considered in this study – Kazakhstan,

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Kyrgyzstan, Tajikistan and Uzbekistan – are members of the TRACECA project. The main goals of the
project are to harmonise customs and foreign trade regulations among the member countries, tostimulate trade, and to ensure the integration of Central Asian countries by developing transportation
infrastructure and connecting them to each other via the Black Sea and the South Caucasus. The project
also aims to facilitate member countries’ access to European and global markets as well as establishing
the connection of the TRACECA corridors with the Trans-European Network (TEN-T) (see Box 5). Most of
the TRACECA infrastructure projects were completed by 2010.
Although a variety of infrastructure initiatives are being implemented in the region, some projects are
more active than others, with these having a larger impact on the connectivity of the five Central Asian
countries that are the subject of this report.
Box 5. The Trans-European Transport Network (TEN-T)
The Trans-European Transport Network (TEN-T) is a European Commission policy directed towards theimplementation and development of a Europe-wide network of roads, railway lines, inland waterways,
maritime shipping routes, ports, airports and railroad terminals. The planned network includes twolayers:

The Comprehensive Network, which covers all Europe; and

The Core Network, consisting of the most important connections within the Comprehensive
Network linking the most important nodes.

The main objective of TEN-T is to close gaps, remove bottlenecks and eliminate technical barriers thatexist between the transport networks of European Union (EU) Member States, strengthening the social,economic and territorial cohesion of the Union and contributing to the creation of a single European
transport area. The actions towards this objective include the construction of new physicalinfrastructures, the adoption of innovative digital technologies, and the use of alternative fuels anduniversal standards.
Nine Core Network Corridors and Two Horizontal Priorities were identified to facilitate implementationof the objectives in line with the funding period, 2014 to 2020. The Two Horizontal Priorities are ERTMS(train control and radio communication standards) and Motorways of the Sea (short sea routes, ports,
associated maritime infrastructures, equipment, and related administrative formalities).
Oversight of the Corridors and the implementation of the two Horizontal Priorities lies with European
Coordinators; these are high-level personalities with long standing experience in transport, financing andEuropean politics, nominated by the European Commission.
EU funding for projects on each Corridor and Horizontal Priority is provided by the Connecting Europe
Facility (CEF). The participating Member States must align their national infrastructure investment
policies with European priorities. Other sources of funding and financing include the European Structuraland Investment Funds and the European Fund for Strategic Investment.
Source: European Commission (2018).

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Assessment framework for freight connectivity
It is unclear whether the planned infrastructure will meet the demands of future trade patterns in theregion. This report models the ability of current and planned infrastructure across Central Asia to cope
under different trade scenarios. This section presents details regarding the assessment, which include (i)the connectivity indicator used to assess transport network performance, (ii) the regional road andrailway networks tested in the scenarios and (iii) the freight-growth projections used in the baseline
scenarios for years 2030 and 2050, as well as an alternative scenario in which global maritime costs
increase 50% by 2050.
Several indicators are used to assess connectivity gap and bottlenecks

A gravity-based connectivity index is calculated for each scenario. The ITF international freight model andthe related network model are used to calculate the connectivity gap between the Central Asian
countries and other countries. The model has been re-calibrated for the Central Asian region with
updated information on production and consumption centroids, transport networks and theirperformance, and freight volumes. For this, raw data were collected from participant countries andinformation on CAREC projects was analysed and taken into account in the scenarios’ design. The
resulting analysis gives us for the first time a clearer understanding of the routes and volumes of future
trade flows in the region under different scenarios based on real data and actual plans.
The methodological approach for measuring connectivity is a gravity-based model which measures thepercentage of global GDP accessible from one country by going through or over another. The model
includes four explanatory variables: distance, transport cost, travel time, and border crossing time (seeBox 6).
We identify potential future infrastructure bottlenecks for each freight and infrastructure scenario by
measuring the infrastructure performance under each scenario. The performance, in turn, is calculated
as the sum of all volume-capacity ratios (that is, the number of vehicles passing through a point in a unitof time) for each country. This is a measure of network congestion. The assessment identifies whether
the existing infrastructure is sufficient to meet the future growth in freight volumes or, alternatively, howmuch additional capacity is required to maintain the existing performance level.
Traffic flows passing through each country vary across the scenarios. Good infrastructure and shorter
border crossing times will potentially attract more traffic flows to the region. A maritime cost increase(potentially resulting from various factors, including carbon taxation and oil price increases) might add torail and road traffic because of the modal shift from sea; but it can also decrease land traffic due to theoverall trade reduction on the global level. Changes in traffic flows passing through each country havebeen calculated for the scenarios.
For benchmarking, we also test the impact of reducing border crossing times to the values for Latvia.
Latvia was chosen because of its combination of similar historical background and good performance inborder crossing times on a global level: it is in the 25th percentile of the best performers in the world inborder crossing.
In the case of border-crossing-time scenarios, the main impacts are on route choice and traffic volumes
passing through each crossing point. Therefore, these scenarios include an assessment of the potential
traffic changes at each border crossing point.

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Box 6. Measuring the connectivity gap
The methodological approach for measuring connectivity in this report is a gravity-based model whichmeasures how many opportunities (defined as GDP) can be reached from each country relative to othercountries. The explanatory components are calculated for road, rail and maritime transport modes andinclude distance, transport cost (including border crossing and handling cost), travel time (speed) andborder crossing time.
The following formula represents the indicator structure:

I= ∑

GDPc
c in countries (g ⁄β)cαwhere g is the generalised cost, including all the explanatory factors; α is the elasticity of the index to thegeneralised cost and is set to equal 0.4 (a commonly used value for trade patterns elasticities); β isarbitrarily set so that the ratio gc/β is always below 1 and close to 1 for adjacent countries.
The index measures the ‘economic space’ available to trade by country given the explanatory factors.

Extensive data collection on existing infrastructure and planned capacity

In order to assess future freight connectivity, we carried out extensive work to incorporate all existing
infrastructure plans – including those proposed by the CAREC Program, as well as several national
infrastructure plans – into the underlying network model.
Figure 12 and Figure 13 show all existing and planned road and rail links against the projected futureneeds for the years 2030 and 2050. The base year includes all existing road and rail links. The railway
network in 2030 is complemented with links that are already under construction or planned. The railway
network of 2050 additionally includes investments or links currently under discussion, so it is assumed
that these links will be completed by 2050. The future road network includes additional links andcapacities, with the assumption they will all be completed by 2030.
There are only two railway links highlighted as under construction: Navoiy–Miskin in Uzbekistan, andTavan Tolgoi–Gashuun Sukhait in Mongolia. The Uzbek link was finished in 2017 but, as the baseline
scenario in this study refers to the year 2015, the link is marked as ‘under construction’. The link in
Mongolia, which has been under construction since 2013, will connect the Tavan Tolgoi coal mine to theChinese border. Currently these two points are connected by road and the majority of Mongolia’s coaland copper export is handled at Gashuun Sukhait, where the mining products are transferred from
Mongolian trucks to Chinese ones. In 2018 the construction of this new link was suspended due to lackof financing; the government of Mongolia has since been investments to finish the project.
Among the new railway lines that will likely be built by 2050, there are a few links in Mongolia outside of
the CAREC corridors and a new link that will pass through Kyrgyzstan and Tajikistan. The link in Mongolia
passing from Ulaanbaatar to the west of the country is the 542-km Erdenet–Ovoot corridor, whose
construction is planned to start in 2019. The new railway link that will pass through Kyrgyzstan andTajikistan will connect two detached parts of the Kyrgyz national railways (North and South) andcontinue to Dushanbe. The project will require especially large investments due to a very complicatedconstruction process since more than 90% of the territory of Kyrgyzstan and Tajikistan is covered with
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mountains. As the map shows, there are very few motorways in the region with two lanes or more per
one direction; these are located mostly in the south of Kazakhstan. Many roads in the region are notpaved. Plans for the regional road network involve mostly renovation of existing roads. Additionally,
expansion of existing roads or pavement of unpaved roads is either already taking place or planned.
Figure 12. Planned and existing railway lines in the region and CAREC corridors

Source: ITF

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Figure 13. Planned and existing roads in the region and CAREC corridors

Source: ITF

Freight growth scenarios

The scenarios presented in this report are possible future developments and should not be considered as
predictions. Any scenario depends on several underlying assumptions, such as economic growth,composition of trade and future comparative advantages of countries. Further, the uncertainty of
projections increases as we move further into the future.
The baseline projection for the freight volumes of the Central Asian region is derived from underlying
global trade projections. In the baseline, international freight tonnage will increase over 60% by 2030
and 220% by 2050 from their 2015 levels. The trade flows between Europe and China will increase twotimes by 2030 and almost five times by 2050.
At the network level, freight flows are projected to increase at three Central Asian corridors in particular:
the already intense Mongolian corridor; the corridor going from the southeast of Kazakhstan to Astanaand further up to the northwest; and a corridor going through Uzbekistan to the Caspian Sea. The maps
do not show any substantial flow going through Afghanistan because of the unstable political situation
there; however, if the situation stabilises, the flow pattern in the south of Central Asia will likely change,
with some traffic diverted to the closest sea ports and to southern land routes.
Figure 14–16 show freight flows (in tonnes) that passed through the region in 2015 as well as projectedflows for 2030 and 2050. The largest flows, as could be expected, originate in China and head to Europe.
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One of these flows passes from East to West through the Alataw Shankou border crossing point in China
and Dostyk in Kazakhstan. After the border crossing it splits into two main directions. One is South–Westto Almaty, Tashkent and further to the Caspian Sea; and another is South–North to Astana, and further
to Russia. Another major China–Europe flow passes from south to north through Mongolia and Russia.
Besides China–Europe flows, a few more substantial freight flows could be observed in 2015 in theregion. In Kazakhstan these include the flow along the routes connecting Atyrau (one of the major oilproducing cities in Kazakhstan) with Russia, and another flow passing North–South from Russia throughthe territory of Kazakhstan in the direction of Iran and Pakistan. Part of the Alataw Shankou–Dostyk flow
also goes to the South through Kyrgyzstan, heading to Iran and Pakistan.
By 2030 the flows increase mostly proportionally to the current intensity, with the main flows passing
from China to Europe. By 2050 even secondary flows in the region will increase substantially, challenging
the existing transport infrastructure and capacities of border crossing points. This reflects global trade
growth, which is expected to be especially high for China-Europe trade, which will grow five times
between 2015 and 2050, if measured in tonnes.
Figure 14. Road and rail international freight flow in 2015

Source: ITF

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Figure 15. Road and rail international freight flow by 2030

Source: ITF

Figure 16. Road and rail international freight flow by 2050

Source: ITF

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If the current trends hold, the transit traffic in Central Asia will increase by 6% per year until 2050. Figure
17 displays the share of transit traffic for road and rail freight. The term ‘transit’ here means any traffic
whose origin and destination lie outside the five considered countries. Kyrgyzstan and Tajikistan’s current
share of rail transit is nearly zero, but in 2050 they will gain some share due to the new links (these links
are shown in green in Figure 17. Uzbekistan’s share of rail transit increases in 2030 due to the new link,
but in 2050 it drops, which is likely due to construction of new links in Kyrgyzstan and Tajikistan andpartial diversion of the traffic flow to these new links. The road transit share of Tajikistan decreases
because part of the current traffic will go to the new railway lines.
Figure 17. Transit share of freight traffic

Road

Rail

80%

80%

70%

70%

60%

60%

50%

50%

2015

40%

40%

30%

2030

30%

20%

20%

10%

10%

0%

2050

0%
KAZ

KGZ

MNG

TJK

UZB

KAZ

KGZ

MNG

TJK

UZB

Alternative freight growth scenario: maritime transport cost increase

To illustrate some of the uncertainties, an alternative freight scenario was developed. This scenario
assumes that the implementation of CO2 mitigation measures for maritime transport would increasetransport costs for international shipping due to higher fuel costs and the increased capital expenditures
required to retrofit the ships and install other low-carbon technologies. Furthermore, it assumes thatslow-steaming measures are applied extensively, causing transport costs to increase further due tolonger shipping times, which escalate time-related costs. More specifically, the scenario assumes thatthe sea transport cost will increase from 0.0016 USD/tonne-km to 0.0024 USD/tonne-km and acorresponding speed reduction on the sea transport mode is applied. In this scenario, shippers might
consider other modes that offer lower travel times and transport costs to be more attractive, especiallyfor highly time-sensitive goods (such as fashion, electronics or car parts) and perishable goods (such asfood).
The global analysis shows that a maritime cost increase of 50% will not lead to significant changes intrade and traffic volumes and modal shares on the global level, yet it can affect certain countries moreconsiderably, especially for rail transport. China–Europe trade represents one of the major global tradeflows which could potentially see a shift in its mode share if sea transport becomes more expensive.
Table 3 presents the modal share of China–Europe transport by 2050 under three scenarios: the current
case represented by year 2015, baseline, and increased-cost scenarios. The baseline scenario is the
scenario which includes the planned infrastructure and the border crossing time reduction, which isnecessary to reach the level of performance of Latvia. The third scenario is the baseline one, with a 50%
maritime cost increase globally. The result shows that a 50% increase in sea transport cost causes a slight
reduction in the mode share of maritime transport (0.35%) but impacts drastically the total freight50

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movements (-8%). This reduction results in a loss or transfer of 104 M-tonnes of sea freight volume,
being only 7 M-tonnes captured as additional road or rail freight volume. Approximately half of thisvolume is estimated to shift to rail transport, which is projected to see an increase of 0.16% in its share.
Although the reduction in share of maritime transport is relatively small, the shift to rail mode represents
a roughly 8% increase in the total volume of rail transport.
Table 3. Impact of increased sea transport cost on modal share of China–Europe transport
Trade(USD billions)Freight Volume(million tonnes)

Air %Rail %

Road %

Sea %2015, current maritime cost

586

261

0.9%

2.2%

1.3%

95.7%

2050, current maritime cost

2 376

1 345

0.9%

2.2%

1.4%

95.6%

2050, 50% maritime cost increase

2 376

1 240

0.9%

2.3%

1.5%

95.2%

Scenario

Results may vary across the countries depending on their geographical location and infrastructure, andthe maritime scenario aims to determine the corresponding changes and their effect on connectivity foreach of the Central Asian countries. The following sections present the results of testing the maritime
cost increase scenario, as well as infrastructure scenarios for years 2030 and 2050, and a scenario withborder crossing time reduction.

Results from freight connectivity analysis for Central Asia
The connectivity gap between Central Asian countries and the most developed
economies is high and driven by multiple factors

Figure 18 illustrates the high cost of being landlocked for several countries. Generally, landlocked
countries have a level of connectivity (measured in terms of access to global GDP) that is nearly half thatof the most developed economies. Partly this is driven by their distance from the global economic
concentration, but it is also partly due to their lack of access to markets through effective and low-cost
maritime connections. While many developing economies are landlocked, their access to world markets
depends not only on the physical distance but also on transport costs and, more widely, on theavailability of a trade corridors and transit systems.
The connectivity gap of Central Asian countries is around 50% of that of Germany (Figure 19), which isone of the best performers. This affects countries’ ability to integrate into global value chains. Since theindicator also takes into account domestic production and location of consumption centres, countries
such as those of Central Asia, which have large territories and low population density, have lower
connectivity.

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Figure 18. Global connectivity; access to global GDP

Source: ITF

Percentage of Germany’s connectivity index

Figure 19. Connectivity gap compared with Germany

Source: ITF

For the Central Asian countries, the distance to global economic centres is huge. The typical length ofinterregional corridors is in the same range as the typical route on the African continent (Rastogi andArvis, 2014).
A manufacturer in Germany or United States can reach 20% of the global GDP within a 2 000-kilometre
distance (Figure 20). For a Kazakh manufacturer, the average distance for the same 20% is over 4 000
kilometres. This distance is already a major obstacle for trade. In terms of cost, the distance is evenlarger between developed economies and Central Asian countries. The cost of reaching 20% of world
GDP is nearly USD 300 per tonne for Kazakhstan, whereas for Germany and the United Sates it is around
USD 50 per tonne. Annex 2 presents the corresponding graphs for the five focus countries.
Distance and the transport cost (including border crossing and handling costs) each account for around
one-third of the explanatory component of the connectivity gap. Drivers of the connectivity gap differ

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slightly across Central Asian countries (Figure 21). In Mongolia the cost component is the major driver ofthe connectivity gap, whereas border crossing time has a larger impact in many of the countries, with thelatter having the same impact as speed in Tajikistan and Uzbekistan.
Transit logistics poses equally complex questions to the landlocked location of many of the countries ofCentral Asia. Planning for logistics involves many different stakeholders, complex procedures, andcoordination between public and private sector. Logistics performance is determined by a wide range ofpolicies, implementation mechanisms, and organisations of services (Arvis et al., 2007). It is therefore
important to determine in more detail the factors affecting the low connectivity of Central Asian
countries. Trade and transport policies should focus, through a broad set of policies, on compensating
for the consequences of being landlocked and far from global economic centres.
To reduce the connectivity gap, countries need to focus not only on transport costs but also on reducing
border crossing times and their variability. Delays and a low degree of reliability and predictability ofservices, create massive disincentives to invest and increase total logistics costs (see Chapter 3 on thevariability of border crossing times in Central Asia). The planning is challenging due to a variety ofuncertainties, such as the possible increase in international shipping transport costs due to theimplementation of CO2 mitigation measures or changes in global trade patterns.
Figure 20. Impact of distance on reaching global centres of production and consumption

Source: ITF

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Figure 21. Composition of the connectivity gap

The sections below present the results of testing infrastructure scenarios for the years 2015, 2030 and
2050, as well as a scenario with border crossing time reduction across the countries and a scenario
where maritime costs increase by 50% globally. The impact of the scenarios on the transport flows inCentral Asia is assessed by calculating the needs for infrastructure, changes in the connectivity
indicators, and changes in transit flows.
Current investment plans will reduce the connectivity gap but are insufficient tomeet future demand

Several plans exist to expand or construct new road and rail. These plans are included in the scenarios
assessing whether new infrastructure will improve connectivity and are sufficient to accommodate
future growth.
Current infrastructure investment plans in Central Asia will reduce the connectivity gap with countries
that are leaders in transport and logistics, such as Germany (Figure 22). The connectivity improvement isstrongest for Kazakhstan and Kyrgyzstan. Compared with the current situation, the region will be able toreduce the connectivity gap with Germany – with a slightly smaller improvement in 2030–2050 than in
2015–2030, due mainly to minor additions to infrastructure after 2030.

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Figure 22. Connectivity gap compared with Germany, depending on
the infrastructure plans and time horizon, %The results also suggest that investments currently in the pipeline will be insufficient to accommodate all
the future growth. Table 4 shows the capacity needed to maintain the baseline performance of the landtransportation network. To meet the projected growth in freight and to maintain the current level of
network performance by 2030, substantial road capacity increase is required in Central Asian countries,
varying from 84% In Mongolia to almost 500% in Uzbekistan. The additional capacity needs for rail areless significant, and the existing plans are close to sufficient to meet future demand. For Mongolia theestimated additional capacity of rail is 65% – mainly for the corridor connecting Russia and China, whichis already a congested railway link and is projected to carry substantially increased flows in the future.
For Kyrgyzstan and Tajikistan, the corresponding values are around zero due to a very low current shareof railway.
In the longer term, capacity needs are even greater if the region is to accommodate the future growth of
freight volumes. As Table 4 shows, in 2050, given the flow projections assigned to the planned
infrastructure, the capacity gap increases for both railway and roads. The largest increase in roadcapacity will be required in Uzbekistan, followed by Kyrgyzstan, as the two countries will attract large
volumes of freight (Figure 16). Uzbekistan would require an expansion of its road and railway capacity
most by 2050 to maintain the same level of network performance as today.

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Table 4. Infrastructure capacity required to maintain network performance, 2030 and 2050
(in volume-capacity ratios)
2030

2050

Country

Road

Rail

Road

Rail

Kazakhstan

151%

45%

350%

138%

Kyrgyzstan

251%

5%

984%

10%

Mongolia

84%

65%

284%

306%

Tajikistan

191%

0%

516%

3%

Uzbekistan

486%

13%

1365%

459%

It is important to emphasise that the capacity-needs indicator does not automatically translate to actual
infrastructure investment needs and does not mean that the countries need to try to achieve such a level.
This is because doing so would require significant investments (especially in the case of roads in
Uzbekistan and Kyrgyzstan, as the table shows) which will not necessarily pay off in future given therelatively low population density of the countries and their GDP. Different measures beyond
infrastructure improvements can help to reduce the capacity needs in order to maintain or achievecertain levels of network performance. The capacity needs are measured in terms of maintaining or
reaching a certain level of the volume-to-capacity ratio in the network. Therefore, measures that
improve volume-per-unit indicators will have a positive impact on this indicator. While this includes
actual improvement of the infrastructure (construction and renovation of the existing lanes, increasing
their capacity, better pavement), additionally, the volume-per-unit indicators can be improved throughefficiency improvements – which might include bigger shipments, use of ‘mega-trucks’, and autonomousvehicles with platooning systems.
While the CAREC corridors demand an increase in infrastructure capacity, other roads that connect themain corridors should also be improved substantially. Figure 23 and Figure 24 show the exact links androutes where, according to our projected scenarios, bottlenecks will be observed in 2030 and 2050. The
figures show a capacity increase beyond the capacity provided by the projects currently planned until
2050. The routes along the CAREC corridors will require a major capacity increase. This could be
expected despite the planned investments because most of the CAREC road projects in Central Asia aredesigned to improve existing road quality rather than increase of the number of lanes. This strategy isreasonable given the low population density and relatively low traffic in the region, as well as the quite
substantial room currently left for improving the road network quality. In this case, rehabilitating existingroads still will increase the volume-to-capacity ratio; however, if the traffic volume increases in future as
projected, the countries might need to consider increasing the number of lanes of certain roads as well.

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Figure 23. Capacity needs in percentage of increase of the current capacity, 2030

Source: ITF

Figure 24. Capacity needs in percentage of increase of the current capacity, 2050

Source: ITF

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Several routes outside of CAREC corridors will likely need a significant increase in capacity as well. Mostof these routes are located in Kazakhstan; they include routes connecting Pavlodar with Astana,
Karagandy, Ust-Kamenogorsk and the Chinese border and several routes in the North connecting Atyrau,
Aktobe, Oral, Kostanay, Astana and Petropavlovsk.
In addition, several routes outside of the CAREC corridors (connecting countries within the region) willneed a capacity increase, such as Samarkand–Dushanbe, Kyzylorda–Urganch, and Tashkent–Khujand.
Routes that are not considered parts of international corridors should not be overlooked, as they often
provide local connectivity for cities and industrial sites of the region.
For countries or areas with low population density and long distances, such as Mongolia, this is especiallychallenging since connecting small towns might require substantial infrastructure investments. Here,finding optimal local solutions in terms of connectivity benefits and costs of construction andmaintenance is of the greatest importance.
Improving border crossings can bring larger connectivity benefits when combinedwith enhanced infrastructure

The Central Asian countries have made substantial efforts, including financial investments, to reduce
border crossing times, with significant improvements over the last years (see also Chapter 3). However,the border crossing process is still relatively long, with high variations compared to the average world
figures, mostly due to queuing at the borders (CAREC, 2016).
A scenario where border crossing times are reduced allows for estimation of its effect on traffic flows
passing through the countries and through exact border crossing points, as well as the potential impact
on connectivity. For this scenario the border crossing time of the five studied countries was reduced tothat of Latvia, where border crossing times are good on a global level of comparison.
A comparison with the current situation (Figure 25 and Figure 26) shows that for all of the countries, aconnectivity improvement resulting from improved border crossings is comparable to one resulting fromnew infrastructure. While this analysis does not include assessment of the impact of other logistics
operations on connectivity, the results highlight the importance of soft measures.

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Figure 25. Connectivity gap compared with Germany depending on
the infrastructure plans and border crossing, 2015 and 2050 (%)

The overall traffic flow passing through the region will increase by 11% for road and 2% for rail by 2050
due to the improvement in border crossing time, resulting in more capacity requirements toaccommodate all the growth. Table 5 shows the capacity needed to maintain the performance of theland transportation network in year 2050 for both roads and railways, and the expected increase intransit flows due to the border crossing time reduction. Most of the countries will need more capacity –especially Tajikistan, for which the border crossing time reduction attracts substantial additional rail flow.
(The rail capacity need for Tajikistan is also large due to the small size of its current railway network.)
Kazakhstan and Uzbekistan, by contrast, might lose some of their rail flow due to a loss of mode share toroad and to a redistribution of the flows along different routes.
Transit flow changes are more significant than the changes in the overall flow of trade. All of thecountries will gain more road transit traffic if border crossing times are reduced, especially Kyrgyzstan.
Transit traffic in Tajikistan’s rail sector will increase 95%, while in the rest of the countries the rail traffic
will increase only slightly.
Table 5. Border crossing reduction effect on countries' needs forinfrastructure increase, transit flow and total flow, 2050 (% of change)
Capacity needs

Transit flow changeCountry

Road

Rail

Road

Rail

Kazakhstan

2%

-2%

10%

5%

Kyrgyzstan

28%

1%

32%

8%

Mongolia

0%

3%

1%

4%

Tajikistan

28%

278%

9%

95%

Uzbekistan

0%

-5%

-1%

4%

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While border crossing improvements will enhance connectivity, for authorities, it is important tounderstand possible changes in choice of routes by hauliers. Figure 26 shows the percentage change inthe case of reduced border crossing times compared with the case where border crossing times remain
the same. As the figure shows, the flow passing through most of the border crossing points will increase.
Flow might decrease at several border crossing points as it moves to other, higher-capacity routes. For
example, several border crossing points around Fergana Valley between Uzbekistan, Kyrgyzstan andTajikistan gain substantial increase in passing traffic. Because (as today) the cargo will need to crossseveral borders if it passes through this area and the border crossing time is thus high, the hauliers
prefer using longer routes but passing through fewer countries and border crossing points. It is
important to note that the variation in the border crossing time that is not taken into account in thetested scenario might affect these results significantly, as well as official and unofficial payments due toborder crossing and passing through each country.
Figure 26. Change in traffic passing through each border crossing point
as a result of border crossing time improvement, 2050 (%)

Since the border crossing time improvements might affect the route choice (and thus the choice ofcountries through which the route passes), the planning of such improvements needs to be linked withrelated infrastructure investments. The countries should also build their analytical capacities to the point
where they are able to estimate such changes, then take the estimations into account during theplanning process. Among the border crossing points mentioned above, the ones which might require asubstantial capacity increase are the points around Petropavlovsk and Aktobe in Kazakhstan, several

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points along the Uzbek-Turkmen and Kyrgyz-Kazakh borders, the point near Tirmiz on the Tajik-Afghanborder, and Torugart on the Kyrgyz-Chinese border.
Changes in maritime costs may have a significant impact on transit in Central Asia

Transport costs due to international shipping might increase significantly in future due to theimplementation of CO2 mitigation measures, which would increase fuel costs and require capital
expenditures to retrofit the ships and to install other low-carbon technologies. The maritime sector will
be particularly affected by such measures since it is (i) responsible for approximately one-third of thefreight transport emissions and (ii) currently exempted from fuel excise taxes (unlike road transport).
Therefore, implementation of carbon taxes is considered a reasonable solution by various institutions(e.g. ICS, 2016; ITF, 2017b; UNCTAD, 2016; IMF, 2018)
The test of the impact of the maritime cost increase on the transport flows in Central Asia allows
assessing the corresponding needs for infrastructure, changes in the connectivity indicator comparedwith year 2050, and changes in transit flows.
A maritime cost increase will reduce connectivity at the global level (due to the cost increase) – and,
therefore, also in Central Asia, since some global centres of production and consumptions still can bereached only by sea (Figure 27). However, the connectivity decrease in Germany will be more substantial
than in Central Asia since Germany is more involved in the maritime freight sector; thus, the connectivity
gap between Germany and the Central Asian countries will decrease, as the figure shows.
Figure 27. Connectivity gap compared with Germany depending on
the infrastructure plans and maritime costs, 2015 and 2050 (%)
62%
2015

60%
58%
56%

2050 - new infrastructure but nomaritime costs increase

54%
52%

2050 - no new infrastructure but
maritime costs increase

50%
48%

2050 - new infrastructure is built andmaritime costs increase

46%
KAZ

KGZ

MNG

TJK

UZB

Moreover, an increase in the maritime cost at the global level will reduce trade volumes and, therefore,
traffic on the global level. On the other hand, the maritime cost increase causes a shift from sea to rail.
The sum of these two opposite effects (opposite in their impact on rail and road) results in changes oftransit flows in the Central Asian countries, as shown in Table 6. The observed increase in transit flow isespecially high for road transit. However, transit constitutes a relatively small share of total traffic, andthe overall traffic flow is slightly reduced due to the reduction of the volume of cargo transported by rail
and road to the sea. Therefore a capacity increase is not required.

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The observed changes in traffic flow and the corresponding capacity needs can be explained by the highcost of rail and road haulage compared with the cost of transportation by sea. Although the model showsthat, at the global level, road and rail flows in some countries might increase by several times because of
the maritime cost increase, in the Central Asian countries the difference between the maritime and landtransport cost still would not be sufficient to boost a major mode shift.
Table 6. Effect of a global 50% maritime cost increase on countries' needs for an infrastructure increase,and traffic flow increase, % of the increase, 2050
Capacity needs

Transit flow changeCountry

Road

Rail

Road

Rail

Kazakhstan

0%

4%

12%

2%

Kyrgyzstan

-1%

-1%

35%

6%

Mongolia

-1%

-3%

0%

1%

Tajikistan

2%

-1%

36%

134%

Uzbekistan

-3%

-1%

20%

1%

Overall, the scenario analysis results showed that the impact of an increase in the cost of maritime
shipping will have a significantly smaller impact on infrastructure needs than trade growth. Therefore,
the countries should marginally account for this future growth in their investment and policy planning. As
noted above, the desired performance level of the transport network can be achieved not only by
expanding physical infrastructure, but also by improving transportation efficiency.

Moving forward: cost and travel time reduction is the key
For Central Asian countries, the factors of distance and landlocked status can never be fully eliminated.
However, as this chapter shows, they can be compensated through appropriate policy measures aimed
at reducing costs and travel times. The direct monetary costs include tariffs, licenses, insurance, bordercrossing fees, etc. The time component consists of travel time as well as border crossing time, including
queuing, etc. Reducing the cost and time of long-distance connectivity is crucial, and rail corridors form areliable complement to sea – and a backbone of long-distance connectivity. Road transport has a great
advantage because it is flexible and, for carrying goods and people over short distances, faster and more
economic; it therefore can provide good access to the other modes or serve as the main mode forshorter trips.
The results show that current infrastructure investment plans in Central Asia will reduce the connectivity
gap, but the investments in the pipeline are not sufficient to accommodate all the future growth. The
main corridors identified by international programs such as CAREC and BRI are not sufficient and need tobe complemented with intra-regional connectivity. These routes outside of the main corridors, which are
expected to sustain a substantial flow increase as early as 2030, are those in the north of Kazakhstan, as
well intra-regional routes such as Samarkand–Dushanbe, Kyzylorda–Urganch, and Tashkent–Khujand.
Various measures beyond the construction of new infrastructure can help to reduce the capacity needs
to maintain or achieve certain levels of network performance. These measures include bothinfrastructure improvements (e.g. building and renovating existing road lanes, increasing their capacity,using better pavement) and efficiency improvements (e.g. use of bigger shipments and ‘mega-trucks’). As

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a technical speed limit has been reached in recent decades, opportunities for further reducing shipment
times are mostly associated with intermodal and transmodal operations, with containerisation being thefundamental factor.
The Central Asian countries should also develop or continue developing national and regional logistics
strategies. The main goals of the strategy should be to identify, upgrade and interconnect the assets that
contribute to trade competitiveness. The priorities already highlighted in this chapter include addressing
last-mile connectivity issues and providing better intermodal links between the national transport
networks connecting regions to the rest of the world. The following chapters present more details on
possible developments of the national and regional logistics strategies.
Improving border crossing can further increase connectivity in Central Asia. It can affect the route andmode choices of the hauliers, however, with variations occurring within the same country, or among
different countries and transport modes. The most substantial changes due to border crossing time
reduction will likely happen in the area of the Fergana Valley, where the borders of Kyrgyzstan, Tajikistan
and Kyrgyzstan intersect. In this area the amount of traffic passing through the border crossing points
will likely increase by more than 50% if border crossing times are reduced to those currently prevailing in
Latvia. It is important for the authorities to understand possible changes in these choices and to linkplanned improvements at border crossing points with related infrastructure investments.
A maritime cost increase would not significantly affect traffic flow through the Central Asian countries
and would require very minor infrastructure changes compared with the changes that would be neededto accommodate trade growth over the years. However, the maritime cost increase is just one of theplausible scenarios in the rapidly changing modern world, and the countries should strengthen theiranalytical capacities so they are able to estimate the effects of their investment plans under various
plausible scenarios.
The uncertainty related to costs and travel times stems from both endogenous and exogenous factors.
The former refers to government actions such as setting tariffs, improving physical and soft
infrastructure for faster connections, etc.; exogenous factors include changes in global oil prices and CO2
taxes, the political and economic situation of other countries, technological disruptions, etc.
Sufficient institutional capacity will be necessary to be able to plan under conditions of uncertainty, and
it is important that the Central Asian countries develop tools to adapt to these uncertainties – including
detailed national transport models to improve the precision of projections. Their ability to adapt touncertainties is best served by adopting flexible planning procedures within long-term strategic planning
frameworks. In addition, it is critical for the Central Asian countries to integrate the concepts of resilienceand vulnerability. Transport assets that integrate such considerations systemically can reduce potential
uncertainties around supply shocks and the temporary unavailability of infrastructure.
Because Central Asia is a part of the global transport network, various exogenous factors, besides thepossibility of a maritime cost increase, might affect regional trade and traffic flows. To remove suchbarriers, strong international and intra-regional cooperation is necessary.

Enhancing connectivity does not automatically lead to economic
benefits
Enhancing connectivity can generate both short- and long-term economic growth. Improving tradeinfrastructures, fostering the efficiency of logistics services, and improving the speed and predictability ofcustom procedures will ultimately lead to faster, more reliable and cheaper freight transport. In the short
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run, this means that businesses have a better connection with potential suppliers, which enables them toaccess higher-quality or lower-cost inputs; but also with customers, which enables them to supply newmarkets. In the long run, improved connectivity will lead to broader socio-economic outcomes throughagglomeration effects and the integration of domestic companies into global value chains (OECD, 2015).
However, the growth potential associated with increased connectivity is neither unlimited nor automatic;
rather, it varies with the local context. Numerous empirical studies show how the effect of transport
infrastructure on economic growth varies in different regions of the world. The elasticity of GDP to thetransport infrastructure endowment ranges from 0.03 to 0.3. It is stronger for smaller, flatter, and lessdeveloped countries, suggesting that economic integration is a key mechanism (Melecky et al., 2018,
Elburz et al., 2017). More generally, triggering the benefits of enhanced connectivity will require
progress in addressing other structural reform challenges, particularly in terms of strengthening
competition, entrepreneurship and private-sector development (for an overview in the Central Asian
region, see OECD, 2018).
The economic impact of enhanced connectivity is both context- and project-specific. It varies by sector
and by type of transport infrastructure. Cantos et al. (2005) showed that road stock significantly impacts
all economic sectors except construction, with a much higher elasticity in agriculture (0.124) followed byindustry (0.067) and services (0.013). The impact of road infrastructure also varies depending on
investment type. For instance, according to the results estimated from regional-level models in Maryland(Zhang and Kastoruni, 2014), in the short run, increasing highway mileage by 1% creates less economic
growth than improving the overall quality of the existing highway system by 1%; in the long run,however, the effect of highway construction is larger than that of highway maintenance.
The potential for growth ranges between 1% and 11%

Large investments projects planned in Central Asia, as well as foreseeable improvements in bordercustom procedures, have the potential to increase connectivity to foreign market by 5% to 11%. This will
result in both higher trade volumes and, through the specialisation and agglomeration of economies,
higher productivity. This report estimates that the potential for growth ranges between 1% and 11%.
The estimation proposed in this report is based on a simple but robust approach. Let us start with acaveat: Assessing the economic impact of large investment projects and policy reforms pertaining toconnectivity is beyond the scope of this study. In fact, the relationship between transport system
performance and the economy is still under debate in the scientific community. An advanced approachrequires spatial general equilibrium models (Melecky at al., 2018); however, although conceptually thesetools can provide rich insights into the direct and indirect effects of a corridor intervention, they remaincomplex, expensive to set, and arguably unreliable (ITF, 2017b). For this reason, we have retained asimplified approach.
The assessment methodology consists of two steps. First, we estimate the trade increase from theconnectivity indicator, assuming an elasticity of one. Indeed, our indicator derives directly from theclassic gravity model of international trade (Walter, 1954), where trade is proportional to connectivity.
Second, the trade increase is assumed to lead to an increase of GDP per capita, with an elasticity of 0.9(Frankel and Romer, 1999).
The results estimated using the connectivity indicator (Figure 28) suggest that the contributions of new
infrastructure and improved border crossing times will have a positive effect on economic growth,varying from nearly 1% to 11%, between 2015 and 2050. The contribution to growth will be especially64

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high for Kyrgyzstan (11%), assuming the country both builds the planned infrastructure and improves theborder crossing times.
Figure 28. Potential growth of GDP as a result of transport policy measures, from 2015 to 2050
(percentage change)
12.0%
2050 - new infrastructure
but no border crossing
improvement

10.0%
8.0%

2050 - no new
infrastructure but bordercrossing improves

6.0%
4.0%

2050 - both new
infrastructure is built andborder crossing is
improved

2.0%
0.0%
KAZ

KGZ

MNG

TJK

UZB

The observed economic growth is quite modest, given the 35-year time period. However, three remarks
must be made. First, these are aggregated estimates; the actual impact will vary significantly acrosscountries’ regions (e.g. in rural and urban areas, or depending on the proximity to the main corridors).
Second, the measured effect can be amplified with appropriate supporting policy measures, in particularby focusing on regional connectivity. Third, this benefit must be compared with the investments
required. Some measures – the improvement of border crossing procedures, for example – might
require little investment while fostering connectivity significantly.
Quantify connectivity to focus on investments that offer the best value for money

One of the main benefits of ongoing international infrastructure projects is the improved connection ofCentral Asia to foreign markets. Currently, however, when projects are appraised, their impact onconnectivity is rarely quantified. Instead, the assessments focus on immediate and short-term outcomes,
such as savings in travel time and vehicle operating costs.
Appraisal methods should be expanded in the countries so that the connectivity impact becomes themain criterion of project prioritisation. This would require conducting studies using geographic economy
methodologies to understand how, and to what extent, better connectivity will benefit national
economies. Such studies can also reveal whether and where international infrastructure projects may
foster investments on main corridors. In short, for every large project the connectivity gains should bequantified and monetized. Even if assigning a value to connectivity is difficult from a scientificperspective, it is important to choose a reference value to ensure that decisions are consistently made.

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References
Cantos, P., M. Gumbau‐Albert, J. Maudos (2005). “Transport infrastructures, spillover effects andregional growth: evidence of the Spanish case.” Transport Reviews, 25(1), 25–50.
CAREC (2016). CAREC CPMM Corridor Performance and Measurement Monitoring. Annual report.
Chateau, J., R. Dellink, E. Lanzi (2014). An Overview of the OECD ENV-Linkages Model. OECD: Paris,
France.
Deloitte (2018). Embracing the BRI ecosystem in 2018. Navigating pitfalls and seizing opportunities.
Available on: https://www2.deloitte.com/insights/us/en/economy/asia-pacific/china-belt-and-roadinitiative.html . Accessed on the 20th of November 2018.
Elburz, Z., P. Nijkamp, E. Pels (2017). “Public infrastructure and regional growth: Lessons from metaanalysis”. Journal of Transport Geography, 58, 1–8.
European Commission (2018). Available on:https://ec.europa.eu/transport/themes/infrastructure/about-ten-t_en . Accessed on the 20th ofNovember 2018.
Fontagné, L. and J. Fouré (2013). "Opening a Pandora’s Box: Modelling World Trade Patterns at the 2035
Horizon", CEPII Working Paper No. 22. Paris: CEPII Research Center.
Frankel, J. A., and D.H. Romer (1999). “Does trade cause growth?” American Economic Review, 89(3),379-399.
ITF (2016). Capacity to Grow. Corporate Partnership Board Report.
ITF (2017a). Public Private Partnerships for Transport Infrastructure: Renegotiation and Economic
Outcomes. ITF Roundtable Report No. 161. Paris: OECD Publishing.
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ITF (2017b). Quantifying the Socio-economic Benefits of Transport.
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Lobyrev, V., A. Tikhomirov, T. Tsukarev, and E. Vinokurov (2018). Belt and Road Transport Corridors:
Barriers and Investments. Eurasian Development Bank, Institute of Economy and Transport
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Martinez, L., J. Kauppila, M. Castaing (2014). “International Freight and Related CO2 Emissions by 2050: A
New Modelling Tool”. Discussion Paper No. 2014-21, International Transport Forum.
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It?”, OECD Economic Policy Paper, September 2016, No. 18.
OECD/ITF (2017). ITF Transport Outlook 2017. Paris: OECD Publishing.
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United Nations (2014). World urbanization prospects: The 2014 Revision. New York: United Nations
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Economics, 68 (2): 305–320.

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3. Benchmarking national freight systems
The performance of transport infrastructure and markets is critical to the competitiveness of the Central
Asian economies. Well-functioning logistics systems facilitate trade by lowering the cost of access tointernational markets and improving the competitiveness of domestic firms (Arvis et al., 2018). Highquality transport infrastructure underpins both the success of firms operating in international markets
and an economy’s attractiveness to foreign investors (Yeaple and Golub, 2007).
This chapter focuses on national freight policies and on how to improve their efficiency. The analysis
follows ITF’s standard practices in assessing the performance of transport systems (for previous work,see ITF, 2015, and OECD, 2017). It employs a set of key performance indicators (KPIs) that, by focusing on
various dimensions of freight systems, allow for the benchmarking of the region against ITF countries’
best practices. The chapter focusses on three specific dimensions:
1. The quality of trade and transport infrastructure
2. The efficiency of transport and logistics services
3. The speed, simplicity and predictability of customs procedures

Transport infrastructure in Central Asia
Physical infrastructure is foundational in transportation. Transport infrastructure is known to have asignificant impact on the productivity and cost structure of an economy (Haughwout, 2001). Poortransport infrastructure implies not only longer and less-reliable travel times, but also increased vehicle
maintenance costs.
The perception of transport infrastructure by international freight forwarders is
improvingA first approach to assessing infrastructure quality is to analyse some of the available international
benchmarking tools. This sub-section looks at two in particular: the World Bank’s Logistic Performance
Index (LPI) and the World Economic Forum’s Global Competitiveness Index (WCI).
The LPI is a multi-dimensional assessment of logistics performance. It is based on surveys of port
operators, shippers and freight forwarders, producing a composite index reflecting responses to thequestionnaire. Because of the nature of those surveyed, the LPI is oriented towards assessing thetransport of manufactured goods rather than bulk commodities, and it is more applicable to higher-value
goods. It is divided into six main dimensions for the International LPI and four for the Domestic LPI, eachassociated with an indicator. The LPI’s infrastructure indicator, used below, represents the overall qualityof trade- and transport-related infrastructure.
The WCI rests on unique data drawn from the Executive Opinion Survey, which surveys top businessexecutives in all countries covered. Infrastructure is one of 12 competitiveness “pillars” covered by theindex. In particular, it gives an assessment of the perceived quality of rail and road networks.
These two indicators generally show that the quality of transport infrastructure is still to be improved. Asof 2018 the LPI infrastructure index was between 2.5 (Uzbekistan and Kazakhstan) and 2 (Mongolia andTajikistan), while out of 160 countries, 90% have a score over 2; the region performs lower than middle68

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income countries on average (Figure 29). The WCI infrastructure index paints a slightly better picture oftransport infrastructure in the region: scores are comparable to the world average, which was 2.6 in2017 (Figure 30). However, while neighbouring countries such as China and India rank high in the WCI
infrastructure index, Kyrgyzstan, Mongolia and Tajikistan are lagging behind.
Although there is no pattern of growth in the LPI infrastructure index, more detailed indicators show thatthe rail and road networks are improving. The WCI indicates that quality of trunk roads in Mongolia isincreasing. It also records significant progress in Tajikistan, for both rail and road. In surveys conducted
as part of the LPI, over 70% of the international freight forwarders states that infrastructure improved in
Kazakhstan.
There is still much to be done to improve nodal infrastructure such as logistical centres and route-side
facilities. The discrepancy between the LPI and WCI scores can be explained by the difference inmethodological approach. As the LPI covers all forms of infrastructure and tend to focus on high-value
goods, it also gives a broader view in which nodal infrastructures play a crucial role. Local interviews haveshown that logistics facilities for warehousing, multimodal transfer or cross-docking are rare andinefficient. In Tajikistan, roadside infrastructure – such as fuel stations, health centres or motels – islacking, especially in the road section near the Kulma pass, the country’s only direct border-crossing
point to China.

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Figure 29. LPI infrastructure score, 2007–2018

Note: The green area depicts the inter-decile range.
Source: Arvis et al. (2018).

Figure 30. WCI infrastructure score, 2007–2017

Note: No data is available for Uzbekistan.
Source: WEF (2017).

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The road and rail networks are slowly recovering from years of insufficientmaintenanceTransport infrastructure density in Central Asia is low, reflecting both the geographically dispersed
nature of the region’s cities and its large, sparsely populated geographies. Road network density, forexample, is about ten times lower than in other middle-income countries. Although this observation is
widely reported, it does not necessarily reflect an infrastructure gap; rather, it is the consequence of thegeographical specificities of the region, which features large, unpopulated areas such as high-plateau ordesert regions. Other sparsely populated countries, such as Chile, Australia and Canada, also have roaddensities of approximately 0.1 km of road per km2. Similarly, the percentage of unpaved roads is high in
Tajikistan, Kyrgyzstan and Mongolia, where gravel and improved-earth roads are common. Yet given the
low traffic levels, it is generally economically justified. Even in high-income and low-density countries, it
is not uncommon to have a high share of unpaved roads (Table 7). The economic logic is the following:
for road users, unpaved roads mean higher operating costs and lower speeds. The traffic volumes on theroad need to be high enough so that the aggregate benefits outweigh the upfront investment costs andthe yearly maintenance costs (World Bank, 1988). Applications to various developing countries of the
Highway Development and Management standards, developed by the World Road Association (PIARC,
2019), have shown that the economic traffic threshold for paving roads is between 100 and 400 vehicles
a day. In countries such as Mongolia, Kyrgyzstan and Tajikistan, such traffic levels are not achieved on alarge share of the road network.
Table 7. Transport infrastructure provision in Central Asian countries and comparators
Countries

Road density
2(km per km )% of which
unpavedRail Density
2(m per km )% of whichelectrified

Kazakhstan

0.04

25%

5

27%

Kyrgyzstan

0.17

70%

2

~0

Mongolia

0.03

91%

1

~0

Tajikistan

0.19

83%

4

~0

Uzbekistan

0.18

13%

10

29%

Upper-middle-income countries

1.5

38%

31

31%

Chile

0.10

60%

0.43

Australia

0.12

57%

0.53

Sweden

0.53

70%

2.38

Source: Open Street Maps, CAREC (2017).

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Table 8. Road design in Central Asian core national networks
Countries

Trunk road network(thousand kilometres)% of roads withmotorway standards% of two-lane roads
with international
design standards% of two-lane roads withlow design standards

Kazakhstan

13.3

3%

89%

52%

Kyrgyzstan

1.8

0%

17%

83%

Mongolia

4.3

0%

6%

94%

Tajikistan

1.9

0%

52%

48%

Uzbekistan

10

26%

59%

10%

Source: Asian Highway database, UNESCAP (2016).

There are only few transport links with high capacity and high design standards, even on core national
networks. Only Kazakhstan and Uzbekistan have motorways corresponding to international standards,
i.e. access-controlled roads with two lanes separated by a median strip. Their geometric design (lanewidth, maximal curve and inclination) allow vehicles to drive safely at higher speeds, typically 120 km/h.
The main motorways are the M39 between Tashkent and Samarkand and various routes connecting
Almaty to the important cities along the Kazak-Kyrgyz border. By contrast, most of the trunk network has
low design standards, with double bituminous surfaces rather than asphalt concrete or cement concretesurfaces. These types of pavements are usually recommended for medium-traffic rural roads and are notsuited for important routes. They impose low driving speeds and are easily damaged by heavy freighttraffic or overloaded vehicles.
During the last decade, there have been significant efforts to rehabilitate international transport
corridors. As international transport corridors tend to overlap with core national networks (see Figure 12
and Figure 13), this means that roads connecting the main national economic centres (typically oblast
capitals) are now in a good shape. The Asian Highway database reports that more than 70% of the core
national network is in good condition (UNESCAP, 2016). This is the result of major investments after
2005. Most of national roads were built in the 1970s and have not gone through any major
reconstruction since.
Local roads, however, are in poor condition. For years the underfunding of maintenance work has
produced roads in a state of disrepair. Furthermore, the road infrastructure is regularly affected byextreme climate events. In Kazakhstan, available data show that only 18% of oblast roads and 10% of
urban roads are in good condition, whereas roads in urgent need of repair were 26% and 47%,
respectively (ADB, 2016). In Tajikistan, up to 80% of the road network is considered as being in poor orvery poor condition (ADB, 2011). Although a quantitative assessment of the road network state is notavailable for every country, local interviews reveal that better road maintenance is needed throughout
all Central Asian countries.
Insufficient maintenance has been costly for Central Asian governments. It has led to an important asset
loss, constraining national integration and access in remote areas. The maintenance backlog has reachedconsiderable value, which could have been avoided by adequate maintenance strategies. Because
rehabilitation costs can be five to ten times higher than the cost of periodic maintenance, no road shouldbe allowed to deteriorate to a level of poor condition, unless there has been a decision to abandon it. In
Mongolia, rough estimates show that rehabilitating the (paved) road network to good conditions would
cost USD 260 million (Hasnain et al., 2013). In Uzbekistan there is a sizeable backlog of deferred
maintenance, estimated at USD 1 billion (PADECO, 2014). More generally, if the lack of maintenance72

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persists, the roads that are now in good condition or were recently rehabilitated with external or internalfunding could require more investment for rehabilitation.
Insufficient maintenance has also been costly to society. Because the cost of operating vehicles rises as
the roads deteriorate, inaction likely has translated into higher transport costs. This, in turn, has
contributed to the very poor quality of access to remote regions and to the high costs of basic
commodities, particularly outside the main regions. In classic transport economics, USD 1 unspent onroad maintenance translates into about USD 4 of loss to the society, most of which is felt longafterwards.
Spending on infrastructure has increased

Historically, regional spending on infrastructure has been low. In the 1990s and most of the 2000s,
infrastructure spending was typically less than 0.5% of GDP, which is significantly under international
standards, especially for rapidly growing countries. Obviously the Russian and Asian financial crises partly
explain this situation, but the lack of existing funding mechanisms has also resulted in very volatilebudgets over years.
During the last decade, expenditure on road and rail has increased steadily, and it is now almost in linewith international levels. Investment in road infrastructure is today around 1% of GDP in most countriesof the region. For rail investment, spending is still low (between 0.3% and 0.5% of GDP), but the volumeof planned infrastructures suggests that it is increasing. This is linked with countries’ efforts to improvetransport planning and funding. Uzbekistan set up a Republican Road Fund (RRF) in 2003 (although it was
not fully operational until 2006) which is responsible for transport planning and financial management ofroad construction and maintenance. The RRF is funded through earmarked profit and turnover taxes.
Under the auspices of the RFF, road budgets doubled between 2007 and 2012.
Figure 31. Spending on infrastructure(% of national GDP)

Note: Latest year available
Source: ITF computations based on data requested from national administration and various ADB
sectorial reports. Kyrgyzstan data was unavailable. ITF data for middle-income countries

However, maintenance budgets remain small. While the condition of the region’s infrastructure would
seem to require higher-than-usual maintenance spending, it is in fact significantly lower than

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international levels. It is likely that the focus on capital expenditures has adversely affected funding forperiodic and routine maintenance. For instance, Mongolia spends only 0.15% of its GDP on roadmaintenance, while maintenance in middle-income countries averages 0.75% of GDP.
Recommendations for improving transport infrastructure
Improve road maintenance funding and efficiency

There is a clear need for stable funding flows dedicated to road maintenance. Given the network’s
current state of disrepair, a fund with earmarked resources is a reasonable option. The fund should be
financed by road user charges set to cover the marginal cost of using roads, rather than through generaltaxation. This ensures stable funding flows that allow for long-term resource planning, with documented
benefits in terms of performance. For example, studies in Latin America showed that the insecurity of
the funding for fuel and salaries led to low equipment utilisation rates and a low number of kilometres
maintained per employee (Gwilliam and Shalizi, 1999).
Although several road funds already exist in Central Asian countries they would need to be restructured.
Experiences in developing countries have shown that road fund can be a useful tool if following some
guiding principles. Road funds should have a strong legal basis, act as an independent executive
authorities and have in-house technical capacity (Gwilliam and Kumar, 2003). Additionally, investment
and maintenance should not be allocated through separate budgets, as there is ample evidence of asystematic bias against maintenance. Existing road funds do not follow these principles. The Republican
Road Fund in Uzbekistan is funded from general taxation, depends directly on the Financial Ministry, andlacks technical expertise, which remains in the national road agency, Uzatoyul. The Mongolian Road Fund
relies on a fixed share of a fuel tax surcharge that is not indexed to construction costs; as a result, thefunding gap has increased over the years.
Although the collection of user charges through road charges on large international corridors is an
option, it might not be suited for all countries of the region. By 2020, in Kazakhstan, 6 500 km of roads
will be charged and should generate USD 90 million in revenue per year; this is expected to cover morethan 50% of the maintenance needs for national roads. While this seems to be a good approach for
Kazakhstan, it is not adapted to every situation. For instance, given the low traffic volumes, the collection
costs of road tolls in Mongolia are 80% (ADB, 2014). In these cases, other forms of collection should beconsidered. In New Zealand, facing a similar situation, the government settled on a road user charge forheavy vehicles (See Box 7).
Modernising road asset management is required to improve its efficiency. Even with larger budgets,
maintenance quality will not necessarily improve if there is no change in the way maintenance isundertaken. A systematic approach to prioritising road maintenance interventions would help
governments better assess the real need for road maintenance and development. Although ad hoc
surveys are undertaken, there is in general no network condition database for rural and local roads. Thisis urgently required. Only with comprehensive data can a prioritised remedial maintenance program be
developed. Road Asset Management Systems (RAMS) are currently being developed in all Central Asian
countries with the assistance of the Asian Development Bank. It is urgent that Central Asian countries
finalise their implementation and use them to design their maintenance strategies.

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BENCHMARKING NATIONAL FREIGHT SYSTEMSBox 7. Road user charging in New Zealand
The road user charge (RUC) was introduced in New Zealand in 1978 as a means of more efficiently
charging for road use by heavy vehicles and to provide a level playing field for rail and road freightcompetition. It replaced a fuel excise duty on diesel and applies to both heavy vehicles over 3.5 tonnes
and light-duty diesel vehicles. The RUC is distance-based: Drivers are required to buy and display a
distance licence, and the charge is enforced by requiring vehicles subject to the RUC to be fitted with adistance recorder.
A cost allocation model is used to distribute road-wear and common costs between categories ofvehicles with regard to space use, vehicle weight and distance travelled. The model is regularly run whenchanges to the RUC are considered, and the model itself is updated periodically; it was last updated in2015. The RUC is one of the main revenue sources of the National Land Transport Fund (NLTF) in
New Zealand, accounting for around 40% of its revenue. Other key funding sources include a fuel excise
duty for petrol- and gas-powered vehicles (around 54%) and motor vehicle registration and licensing fees(around 6%). The NLTF funds road improvements and maintenance, road safety, public transport,
walking and cycling. Local authorities also contribute just under half of the total cost of improving andmaintaining local roads and public transport.
Source: Adapted from ITF (2018).

Table 9. Implementation of Road Asset Management systems
Kazakhstan

Kyrgyzstan

Mongolia

Tajikistan

Uzbekistan

RAMS status

Pilot

Pilot

Pilot

Pilot

Pilot

Data collection

Starting

Starting

AnnualStarting

Starting

Influence planning

No

No

No

No

No

Dedicated funding
for maintenance

No

No

Yes

No

No

Source: Adapted from CAREC (2018).

Invest where impact is maximal

The region has conflicting needs in terms of infrastructure, and this makes it difficult to set investment
priorities. The demand for infrastructure is high around growth poles, near large mining areas and on
international transport corridors, while at the same time most remote areas are poorly connected. Road
freight is playing an increasingly important role in the region, but rail freight has to be developed to servetransit between China and Europe. In such a context, it is important to ensure that investments arecarefully chosen to maximise their impacts and are consistent with policy objectives in terms of industrial
and territorial development.
Today this is not necessarily the case. Between 2007 and 2010, 70% of Mongolian road investments
were targeted at lagging regions, while growth poles represent over two-thirds of the population and are
fuelling national economic growth. This is not to say that connecting rural areas is not a valid policy
objective, but there might be more efficient ways of achieving it. A World Bank (2013) report pointed outthat low-cost improvements in rural transport connectivity are feasible given that Mongolia’s terrain
allows for relatively good driving conditions on gravel roads. Currently this unpaved network is

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periodically disrupted due to bad weather conditions, but it could be made all-weather through afocused programme of spot improvements, such as new bridges or culverts.
Improving investment decisions would require an appraisal framework for pre-feasibility studies. The
OECD countries, and other upper-middle-income countries such as Chile, have fairly sophisticatedsystems of appraisal in place based on the principles of social cost-benefit analysis. Note that thesesystems have a level of sophistication that has gradually evolved over time, and which cannot realisticallybe transplanted to Central Asia given the region’s current level of institutional capacity (see Chapter 4 forrecommendations on institutional capacity).

Box 8. Chile’s National Public Investment System (SNIP)In Chile, all central and regional public bodies willing to undertake an investment project, including but
not limited to the transport sector, must apply to the National Public Investment System (SNIP) for
funding. This system plays a major role in the social appraisal of publicly funded projects andprogrammes. The Planning Ministry (Mideplan) applies a system of checks aimed to verify, first, theformal admissibility of the project and, second, its contribution to a positive welfare change.
A key feature of the project appraisal procedure is the institutional separation between the entity
promoting the project and Mideplan, the institution in charge of taking the funding decision, as well as ofboth ex-ante and ex-post project evaluations. This institution is responsible for regulating the procedures
for appraising projects that seek public funding, developing and managing an information system forinvestment initiatives, developing project preparation and appraisal methodologies and training public
officials. Project appraisal is carried out according to a multistage assessment, with different filters
depending on the phase of the project implementation as well as the complexity of the project. Finally, astrong emphasis is put on standardisation of criteria and formats for the information presented,
facilitating project comparison and ranking. The methodology, standards and norms are widely
disseminated and systematically taught to public officials at all levels of government, which has
contributed to an appraisal culture permeating the Chilean public sector.
Source: Gómez-Lobo (2012).

Transport services and logistics in Central Asia
There is more to transport than just physical infrastructure. The quality of transport and logistics services
is essential to provide fast and competitive shipments.
High logistics costs have a negative impact on regional economic development

Central Asian countries rank low on the LPI’s logistics indicator, which measures the quality of logistics
services such as trucking, forwarding, and customs brokerage. In 2018, countries of the region ranked
between 90th (Kazakhstan) and 140th (Mongolia) out of 160 countries. This is only partly explained by
the lower economic development in the region compared with the rest of the world. Compared to theirpeers, Central Asian countries have an average performance, but there is clearly room for improvement.
Among the lower-middle-income countries, some emerging economies perform much better, such as
Vietnam (34th with a score of 3.39) and Côte d’Ivoire (37th with a score of 3.22). The LPI’s top
performers have usually implemented ambitious policies targeting the logistics sector and created

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dedicated organisations. For instance, India has made logistics one of its highest reform priorities, and in2016 appointed a Special Secretary for logistics in charge of coordinating logistics policies.
Figure 32. Logistics Performance Index scores for various countries(average for upper-middle-income countries as the red line)

Note: As LPI scores are heavily correlated to GDP per capita, best performers have been identified by controllingfor its effect. This means that the four countries have high score given their GDP per capita.
Source: LPI 2018, Arvis et al. (2018).

Poor logistic performance is partly reflected by the high logistic costs observed in the region. Studies
show (Jean-Francois Arvis et al., 2007) that a low LPI indicator tends to translate into high logistic costs
which in turn affects negatively the overall economic performance. Logistics costs, including transport,
warehousing and inventory costs, represent around 20% of the GDP in Central Asia, when it is only 9% inOECD countries (Figure 33). Although this is partly explained by remoteness of the region and its
landlocked situation, a better performing logistics would reduce these costs. Kazakhstan’s logistic costs
are much lower than those of Tajikistan, at 18% and 23% of their national GDPs, respectively.

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Figure 33. Logistic costs in selected countries
30
25

15
10
5
0

Argentina (2004)
Brazil (2004)
Tajikistan
Colombia (2004)
Morocco (2005)
Mexico (2004)
Kyrgyz Republic
Thailand (2008)
Kazakhstan
China (2007)
Chile (2004)
China (2009)
Norway (2007)
Baltic region (2006)
South-Africa (2010)
Korea (2007)
Finland (2009)
Sweden (2005)
USA (2004)
OECD (2004)
Japan (2007)
United States (2010)
United States (2008)
Netherlands (2008)
Europe (2007)
Switzerland (2009)
Europe (2008)% of GDP

20

Source: Adapted from Rantasila and Ojala (2012). These figures should be treated with caution as methods forcalculating logistics costs differ.

The productivity of the road freight industry can be improved

Road transport prices are relatively high given the labour costs and the value of the goods carried. Local
interviews conducted by ITF staff during field trips reveal that the trucking costs for long-haul services,
defined here as over 100 km, are about five cents per tonne-kilometre. This is comparable to costs
observed in Western Europe but higher than for Eastern European truck companies.
The cost structure of the industry differs from that of European countries. Figure 34 presents anestimation of the current situation in Central Asia based on local interviews conducted by ITF staff,
together with the situation in France and Poland. Central Asia has lower capital costs but higher fuel andmaintenance costs, this principally being due to companies working with older vehicles. Even companies
operating in international markets typically buy second-hand trucks in Europe at the end of the initial
three-year leasing period (250 000–300 000 km) and use them for three to six years. Many trucks
operated by domestic companies are much older (10–15 years). Their high fuel consumption is due tousage, age, and vehicle fleet condition. Local sources report that fuel consumption can rise to 50 litres
per 100 km, as opposed to 20 to 30 litres in normal operational conditions. Maintenance costs are highdue to vehicle age, road conditions, and overloading. Tire usage can be up to three times higher than in
the EU. Finally, labour costs appear surprisingly high; this is explained by low productivity due to low
speeds and empty runs.

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Figure 34. Cost structure of trucking services in selected countries

Source: Local interviews conducted by ITF staff for Central Asian countries and CNR (2018) for Europe.

Domestic market

Legal requirements in the regional sector are limited. This is due to a combination of weak regulation, lax
enforcement, and an unregulated road freight sector in Central Asia. Any company can operate on themarket provided it follows the general commercial code. Although some technical regulations exist (interms of working hours, vehicle safety standards and axle-load limitation), these are enforced mainly oninternational market as controls are usually carried out near customs border points.
As a result, the professional standards of domestic companies are low. Unlike most countries of theworld, including emerging economies, entry into the market is not subject to any consideration of
professional qualifications. The potential for competition from unlicensed operators limits thedevelopment of quality services. With the exception of Kazakhstan, there are practically no trucking
companies offering specialised services such as refrigerated transport or convoy transport. This also
leads to fragmentation of the industry.
While road freight is a low-concentration industry in most countries of the world due to limited
economies of scale in road transport, the extent in Central Asia is exceptionally low. Road transportcompanies are indeed small, with a large proportion of them one-person companies, especially on thedomestic market. The average company size is between 1.75 and 2.25 employees, in comparison with
3.1 employees in Europe. Fragmentation is especially strong in Kyrgyzstan, where the magnitude of
informal trade has stopped any attempt to regulate the sector.
International market

On international markets, companies operate under the Convention on International Transport of Goods
Under Cover of TIR Carnets (TIR Convention) and thus have in general higher professional competencies.
TIR operators have to work according to well-defined standards regarding the capacities of thecompanies and their vehicles. The national freight forwarding associations – such as the Association of
the International Road Transport Operators of the Kyrgyzstan (AITRO), the Association of International
Automobile Carriers of Tajikistan, the National Road Transport Association of Mongolia (NARTAM), andthe Union of International Road Carriers of the Republic of Kazakhstan (KazATO) – also play an importantrole in supporting and organising this industry.

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There are potential productivity gains in the railways

Railways in the region have been operating under enormous challenges, and in that context they are
performing rather well. The network was designed with the needs of the former Soviet Union in mind, so
the current borders were ignored. There are several cases where important domestic rail lines have tocross borders: from northern to southern Tajikistan, through Uzbekistan; between several regions ofnorthern Kazakhstan though Russia; between Northern and Southern Kyrgyzstan through Uzbekistan andKazakhstan. After the collapse of the Soviet Union, companies were re-built from the Soviet Railways. In
the case of the Kyrgyzstan and of Tajikistan this was partly done from scratch as they were left with only
branches of Soviet companies. The newly created railways have responded to the transition period byreducing costs, reforming pricing policies and creating marketing departments.
However, there are some signs of potential productivity gains. To illustrate this, Figure 35 and Figure 36
present key indicators illustrating the performance of Central Asian railways compared to selected
countries in the world. The results need to be treated with caution, however. The railways business is nota simple one and the comparison of different cases is not straightforward. Railways come in all shapes
and sizes: vertically integrated, vertically separated, public and private, passenger- or freight-dominatedor mixed, supported by subsidies or fully self-reliant. Proper railway benchmarking requires a set of key
performance indicators (KPIs) based on data that are much more advanced than what is currently
available in Central Asian countries.
Still, the results suggest that railway assets could be better used: Central Asian countries have reasonable
track utilisation but could improve the use of their rolling stock. Given the capital-intensive nature of thisindustry, with high fixed maintenance and depreciation of costs, efficient asset utilisation is indeed
essential. As depicted in Figure 35, Central Asian countries have an average track utilisation level (heremeasured by the ratio between train-km and the length of the network) comparable to other sparsely
populated countries such as Australia. In Kazakhstan it is even relatively high. However, train utilisation –that is, the average load of a train – is low compared to what is observed in other emerging economies.
This suggests that better management of train operations might be needed. Note that although
European countries have lower train loads, this is mainly the consequence of subsidised train services.
Labour productivity is also low. Given the size of their network and the traffic they are dealing with, theworkforce of the regional railways is too large (Figure 36). It is expected that medium-income countries
have more labour-intensive industries, but the productivity gap remains high when comparing toemerging economies such India. Furthermore, Chinese railways are known to suffer from inefficientpersonnel allocations (Beck et al., 2013).

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Figure 35. Railway asset utilisations in selected countries

Source: UIC data, latest year available.

Figure 36. Staff productivity in selected countries

Source: UIC data, latest year available.

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The region’s railways operate with overaged rolling stock, lack modern information technology systems,
and still have to improve their commercial capacities. However, there are levers available to enhance
railway productivity in Central Asia:


Railway companies are starting to renew their rolling stock, much of which is obsolete. Local
interviews have revealed that many delays are due to unreliable equipment.



Many studies have documented the importance of information technology in efforts to improverailway operations. Recent innovations include: on-board locomotive computers to minimise fuelconsumption and wear; railway infrastructure monitoring by drones; and better information
sharing capabilities. As Central Asian railways have not yet started their digital transformation,
they should move in this direction.

Shippers have difficulties in conducting commercial transactions, especially for international
shipments (CAREC, 2014). Such arrangements require dealing with multiple railways, balancing
freight-wagon and container flows, and arranging last-mile deliveries. It would be beneficial forCentral Asian railways to offer integrated freight-forwarding and logistics services across theregion.

Recommendation to move to intermodal transport: consolidating logistics
terminals

Historically, railways in Central Asia have been developed to support block-train and single-wagon
operations. Practically, this means they are organised around a significant number of terminals – which,in turn, are connected to warehouses within the urban railway network. Moving a single wagon typicallyrequires a long series of logistics operations. The wagon is first loaded at a warehouse connected to therailways. It is then sent to the main terminal of its city to be consolidated into a freight train. It mightthen go through successive marshalling before reaching the terminal of destination. Finally, it ismarshalled to the warehouse of destination. This type of organisation implies a large number of bothterminals and marshalling yards, resulting in significant costs and potentially significant delays. It isparticularly unsuited for container traffic.
Modern railways increasingly rely on intermodal container transport. Railways are organised around alimited number of large intermodal terminals where containers are moved between trains and trucks
using large handling equipment, typically cranes. Train services are usually scheduled and use a small
number of stops for loading and unloading. In Western Europe, intermodal freight is a rapidly growing
market, unlike block trains and single-wagon services.
Implementing efficient intermodal transport would require concentrating loading/unloading operations
at a limited number of logistic terminals. Kazakhstan alone has about 30 container terminals, all handlinga small number of containers. About ten terminals are in the Almaty area alone, the biggest handling a
volume of about 30 000 twenty-foot equivalent units (TEUs) per year, or about a train a day. This is low
given the cost of handling equipment. Modern installations typically require 100 000 TEU to operate
efficiently. Moreover, the successive marshalling of wagons to build a full train is a source of costs anddelays.
Consolidation would allow greater economy of scale, but this does not mean that low-traffic lines arebound to be closed. Such an organisation implies a focus on the core railway network, while local, lowprofit lines are closed. On the one hand, this improves the profitability of railways and allows them tooffer competitive services. On the other hand, this limits the railways’ geographic coverage, which might
be harmful for local economic systems. Most OECD countries have been facing this challenge. One well82

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established best practice is to authorise the creation of “shortliners”. Shortline railroad companies are
small companies that operate local networks, possibly under the supervision of the local authorities, andthat act as feeders of the truck network. Because of their small size, they tend to be more flexible thannational operators and are aware of local companies’ needs. In the USA, Canada and Germany,
shortliners represents one-fourth of total activities. Other European countries, such as France, aremoving forward in that direction (Box 9).

Box 9. Supporting the creation of shortliners in France: Les opérateurs ferroviaires de proximité
In 2005, the French government launched an important reorganisation of the freight activity of its
national railway operator, SNCF. It was pursuing higher productivity and economic efficiency throughhigher volumes and decided to stop any form of cross-subsidisation between lines. A strong reduction of
SNCF single-wagon activity was decided as it was in heavy deficit. This created much discontent amongsmall rail shippers, for which connection to railways was essential.
It was subsequently decided to facilitate the development of local freight operators – opérateurs
ferroviaires de proximité (OFP) – that would work in tandem with long-haul companies. Regulation was
adapted to allow for the creation of OFP operation with a sufficient degrees of freedom. While thenational network remains a state monopoly, OFP are allowed to operate their own networks following
safety rules adapted to low-traffic sections, which gives them more flexibility. Support and training areprovided by the national state, while several local authorities offer financial aid.
After 10 years of experiments, there are 15 OFP in operation, most operating in very specific markets.
Four connect medium-to-large ports to core networks. Some have specialised in serving low-density
areas with strong agricultural sectors, while others connect major industrial clusters to the main
network. They have managed to form sustainable businesses where the private and public national
operators had failed. The key to their success is that they offer service packages tailored to local
companies’ needs.
Source: Adapted from Direction générale des infrastructures, des transports et de la mer (2006).

The logistics sector is still at an early stage of development

There is more to logistics than just transporting goods. More-complex logistic services include freight
forwarding, which involves the coordination of multiple carriers to move goods in an optimal manner. In
Central Asia, an important component is also the provision of assistance in the process of customs
documentation (customs broking). In OECD countries, a large part of logistics is now outsourced to thirdparty logistics (3PL) providers. 3PLs provide more-sophisticated logistic services such as warehousing,conditioning and inventory management. 3PLs allow small and medium-sized enterprises to insert
themselves into the global value chain by managing their supply chains.
The results of surveys carried out as part of the LPI suggests that the quality of logistics services is low
compared to other middle-income countries (Table 10). Despite the shortcomings presented previously,
local professionals are more satisfied with their local trucking and railways services than their peers in
middle-income countries. This is not the case for warehousing, freight forwarding, custom broking andservices.

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Table 10. Assessment of logistics services by local logistics professional(percentage of local respondents answering high or very high quality)
Trucking

RailwaysWarehousing

Freight
forwarding

Custom broking

Trade advice

Kazakhstan

57%

48%

14%

38%

10%

30%

Kyrgyzstan

20%

5%

7%

20%

15%

14%

Tajikistan

0%

0%

3%

5%

5%

5%

Uzbekistan

24%

21%

14%

15%

7%

12%

Lower-middleincome

21%

4%

23%

47%

19%

13%

Upper-middleincome

20%

5%

21%

38%

21%

11%

High-income

55%

26%

62%

70%

52%

43%

Note: Mongolia was excluded due to an insufficient survey sample.
Source: ITF computations based on an aggregation of LPI editions from between 2010 and 2018.

This lack of efficient logistics services is part of the reason why high logistics costs are observed in theregion. Local experts report significant costs stemming from the need to maintain high inventory levels
due to a lack of predictability in the logistics chain. Almost all Central Asian manufacturers operate within-house logistics, which reflects the lack of trust in the capability of local 3PLs. Shippers sending freightto Europe are confronted with long supply chains, uncertainties in delivery time, and high costs needed
to compensate for at least 50% empty volume on the return trip due to the trade imbalances.
Furthermore, there is generally a lack of skills in supply-chain management. The limited presence ofinternational logistics companies implies limited exposure to international best practices.
Recommendations to modernise transport and logistics services
Identify opportunities to improve productivity by better understanding operators’ cost
drivers

It is clear from the previous sections that there is a need to enhance productivity in both the rail androad freight sectors by adequately regulating these sectors. Yet, as will be discussed in Chapter 4, there
are many regulatory tools at the disposal of the policy-makers, and their efficient use requires careful
thinking. There is no one-size-fits-all solution as each country has strong local specificities. Furthermore,both sectors are essential to the national economies and poorly prepared regulations could becounterproductive. Informal road transport plays a critical role in current economies and the transition
towards the formal economy should follow a step-by-step approach. Although vertical separation ofrailways might be suitable to some railway operators of the region, it might not be adaptable to smallerscale operators. Hence large-scale regulatory reforms should be evidence-based.
However, policy-makers lack reliable data on the production of road and rail services. On the one hand,
there is very limited data on the trucking industry because it is heavily fragmented and largely informal.
In particular, there is no information on cost structures of companies and very little is known on thegeography of traffic flows. On the other hand, railway operators are large and monolithic companies ofwhich policy-makers have a limited understanding. Reporting to transport ministries is limited to84

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aggregated figures, and the practice of cross-subsidisation makes it difficult to assess thecompetitiveness of specific lines.
Chapter 4 presents various options available to decision-makers to improve existing knowledge regarding
the transport sector, including in particular the implementation of transport and logistics observatories.
Support the creation of a modern logistics sector

As mentioned earlier, the logistics sector is particularly undeveloped in Central Asia. Logistics skills are
scarce and most companies manage their logistics in-house using basic approaches. Policy-makers need
to foster the development of the logistics sector. This would typically require:Incentives to support professional training and higher education in areas of logistics andtransport. The most immediate requirement for skill development is at the technical and middlemanagement levels (see Box 17 in Chapter 4 for an example of the Dutch Institute for Advanced
Logistics, or Dinalog).



The involvement of the private sector in the design of national logistics policies. The chambers ofcommerce and industry as well as industry associations could take active roles in thedevelopment of the sector and the improvement of service quality.



Facilitating the integration of the local industry with global logistics. For instance, Rastogi andArvis (2014) note that freight forwarders typically operate under contracts with the railways, forwhich they act like agents; thus they have very limited connection to international logistics
companies. Redefining the role of freight forwarders with respect to railway companies wouldease their integration within global logistics. Furthermore, barriers to market entry could be
reduced to attract leading international firms specialised in logistics.

Customs policies in Central Asia
Given the economic geography of the region, the efficiency of Central Asian customs is essential. The
population and agricultural heartland of Central Asia is split between Kyrgyzstan, Uzbekistan andTajikistan. Some cities have tight economic connections despite being on different sides of the border.
ADB (2014) shows that Bishkek and Almaty work as twin cities and that their economies arecomplementary in many respects. For instance, there are significant flows of people going from one city
to another for medical care. Almaty specialises in sophisticated capital-intensive services (e.g. radiology),
while Bishkek offers affordable alternatives for some specialities (e.g. dental care).
Yet border management has a difficult history in Central Asia. At the beginning of the 21 st century, anumber of disputes were hampering cross-border cooperation, and the customs services of the Central
Asian republics still followed processes inherited from the Soviet era that did not encouraging crossborder trade. Until recently, import quotas, licensing, complex administrative procedures and overspecified sanitary norms were common.
Significant measures have been taken over recent years

Areas of improvement in customs and border management have been identified for many years. For
nearly two decades, Central Asian countries have benefited from a number of international programmes
designed to reform the region’s border control practices. Since 2003, the Border Management Programfor Central Asia (BOMCA), funded by the European Union and implemented by United Nations

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Development Program (UNDP), has trained border guards and provided technology and infrastructure atborder crossings. Numerous reports have analysed the situation and made recommendations.
The main recommendations involve coordination between the different government agencies, thereduction of red tape and the migration to a paperless environment (UNESCE, 2014). The lack of
coordination between border agencies is frequently mentioned. Rastogi and Arvis (2014) recommended
the interconnection of the transit information systems in the regional countries. Making information onexporters from other countries available would facilitate the detection of fraud and smuggling. Finally,
restrictive policies on transit should be denounced.
The Central Asian countries have actively implemented at least part of those recommendations. Rastogi
and Arvis (2014) report that between 2008 and 2014 Kazakhstan’s custom agency reduced the durationof inspections by 90%. Uzbekistan has largely alleviated its restrictive policies towards transit. All thecountries are moving towards single submission points for all required documentation by implementing
single-window systems, and they are increasingly offering the possibility of declaring customs declaration
online.
Border crossing times are still long and highly unpredictable

From the transport perspective, border crossing times and costs are the main indicators of successful
custom policies. Their careful monitoring is essential. In this regard, the region benefits from a valuable
tool, Corridor Performance Measurement and Monitoring (CPMM), which is conducted on a yearly basis
by CAREC (ADB, 2014). CPMM is based on a survey of international shipments carried by road or rail.
Each year a sample of over 2 500 shipments is collected with relevant information on travel time and on
border crossing time and costs.
Figure 37 presents CPMM data for selected border crossing points and yields several insights. First,
border crossing times vary widely depending on location. On the Chinese side of Irkeshtam, it takes up to
19 hours to cross the border towards Kyrgyzstan. It is barely one hour in Khayagt, on the border between
Russia and Mongolia.
Second, the dynamics in time are also extremely variable. Travel times have decreased in Khorgos,
subsequent to significant investments such as the construction of warehouses and separate vehicle
inspection zones to facilitate border crossing. They have increased sharply, however, in Shirkhan Bandar(Afghanistan), as Tajik customs agencies increased their inspections due to a suspicion of increased
narcotics smuggling. In 2016, the Shirkhan Bandar–Nizhni Pianj crossing could take as long as 60 hours.
Finally, waiting in the queue is the most import cause of delay at borders. The border crossing points of
the region seem to have difficulties in handling the increasing traffic.

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Figure 37. Crossing times for road freight at selected borders

BENCHMARKING NATIONAL FREIGHT SYSTEMS

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Source: ITF estimates based on CPMM data.

BENCHMARKING NATIONAL FREIGHT SYSTEMS

On average, border crossing time has increased for road freight. Figure 38 presents the average bordercrossing costs and times along CAREC corridors. It shows that crossing time is increasing. A detailed
analysis reveals that this is due to a limited number of border points, in particular those between
Pakistan and Afghanistan and between Afghanistan and Tajikistan. Moreover, the variability of bordercrossing times is increasing. This is of particular importance as shippers tend to value consistency incrossing times more than the overall travel time (OECD/ITF, 2009). Indeed, high transport time variability
usually complicates greatly inventory management.
Figure 38. Border crossing costs (top) and times (bottom) along CAREC corridors

Source: ITF estimations based on CPMM data

By contrast, border crossing costs have decreased. Costs include the various official payments, thepotential unofficial payments, and the price charged by the transporter to the shipper for theimmobilisation of the driver and the truck. When expressed in US dollars, costs tend to decrease,although this is partly due to the devaluation of local currencies.
Border crossing times are even higher for rail transport, but the situation has improved in recent years.
In 2016, it took 26 hours for a train to go through a border along CAREC corridors. The major delays arecaused by technical issues rather than inspections: marshalling of wagons, queueing at loading terminals
while waiting to be loaded and unloaded or waiting for high-priority trains to pass. The change of gauge
from China to Central Asia is also an important source of time loss: it takes around five hours in Dostyk.
One of the main problems is the unavailability of wagons, which accounts for up to one-third of thedelay. This problem is well known and results from an imbalanced trade structure between Central Asia

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and China, as well as from inefficiencies in the management of the wagon fleet. In local interviews, thewagon shortage was reported as especially severe on the Mongolian-Chinese and Kazak-Chinese orders.
To deal with this issue, Kazakhstan has authorised private ownership of freight wagons to attract private
investment to the sector.
Organisation for Economic Co-operation and Development Trade Facilitation
Indicators reveal four areas of improvements

The performance of Central Asian customs is still far below expectations. The rise in cross-border traffic
is such that just maintaining the current level of service is already challenging for customs agencies. It
might also be that recent measures are not yet paying off. In some cases, partial implementation might
have been counterproductive. For instance, the Kyrgyzstan requires electronic declaration of goods to bereceived by the customs agency two hours before truck arrival at the border. This facilitates customs
clearance within 30 minutes upon arrival of the shipment, provided there are no errors in the
documentation. In practice, 70% of the declarations sent by customs brokers do not comply with thetwo-hour window. Hence, data are manually entered, often causing delays.
For Central Asian governments, this situation can be an opportunity to take stock of where they are andidentify areas for action. The OECD’s Trade Facilitation Indicators constitute a framework covering thefull spectrum of border procedures. The framework has been applied to 163 countries, including Central
Asian countries, with the latest update in 2017 (OECD, 2018). The results of the latest edition show thatthe region is lagging behind in four main areas and could improve them by implementing wellestablished best practices. This is illustrated by Figure 39, where the Central Asian countries arebenchmarked against South Africa, one of the top performers among middle-income countries. In orderto advance, the countries could improve the following aspects:Automation: Customs agencies do not rely on risk management systems to determine thevarious levels of risks associated with trade movement. Instead, they rely on 100% physicalinspections. In an increasing number of countries, data are gathered and analysed to estimate
the high-risk movements that should be controlled.

Procedures: In theory, a system of authorised operators – i.e. regular traders that will receive
expedient treatment provided they comply with certain requirements – is implemented by theCentral Asian countries. In practice, it is not very developed due to the complexity and length ofthe procedures.

External co-operation: The importance of data exchange has already been discussed. As theCentral Asian countries already have computerised trade systems, protocols for exchange of
information could easily be implemented and would help to manage cross-border traffic.

Internal co-operation: Although there are some forms of coordination – e.g. in Kazakhstan,
regular meetings are held to improve co-operation – examples are limited. There is neither
formalised exchange of data nor coordinated timing established for the physical inspections by
the various agencies.

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BENCHMARKING NATIONAL FREIGHT SYSTEMS

Figure 39. Trade Facilitation Indicators for Central Asian countries, benchmarked against South Africa, 2017
(red dotted line)

Source: OECD

Recommendations to improve border crossing: use performance measures to set
objectives for customs agencies

Local interviews revealed that custom agencies’ main concern was the reduction of custom clearance
time, while little attention was given to queuing time, phytosanitary inspections and other forms ofdelay. This means that actions are not necessarily well prioritised to reduce the true costs incurred bytraders.
A comprehensive dataset like the CPMM is a valuable tool for assessing the actual efficiency of borderprocedures. It should be used by policy-makers to monitor the efficiency of border crossing procedures
and to set targets for customs agencies in terms of reducing border crossing times and costs while
increasing predictability. That said, more-complex KPIs could be built. For instance, by surveying
international freight forwarders, the CPMM offers a ready-to-use analytical product that should befurther exploited.
To complement this approach, a general benchmark of current border procedures against OECD bestpractices would help to identify key areas of improvement. ITF experts recommend a more detailed
analysis of the Trade Facilitation Indicators in Central Asia to assess which measures would yield thebiggest benefits.

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References
ADB (2016), Managing for Development Results in the Transport Sector of Kazakhstan,
ADB (2014), "Central Asia Regional Economic Cooperation Corridor Performance Measurement andMonitoring: A Forward-Looking Retrospective", ,https://doi.org/https://www.adb.org/sites/default/files/publication/148731/carec-cpmm-forwardlooking-retrospective.pdf
ADB (2011), Developing Tajikistan’s Transport Sector: Transport Sector Master
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Arvis, J.-F., M. A. Mustra, L. Ojala, B. Shepherd and D. Saslavsky (2007), "Connecting to compete: tradelogistics in the global economy-The Logistics performance index and its indicators. World Bank",
Washington, DC,
Arvis, J.-F., L. Ojala and C. Wiederer (2018), Connecting to Compete 2018, World Bank Report, World
Bank, https://doi.org/10.1596/29971
Beck, A., H. Bente and M. Schilling (2013), "Railway Efficiency", ITF Discussion Paper , Vol. 12
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Gómez-Lobo Echeñique, A. (2012), "The ups and downs of a public transport reform: the case of
Transantiago", Serie Documentos de Trabajo,
Gwilliam, K. and A. Kumar (2003), "How Effective Are Second-Generation Road Funds? A Preliminary
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Gwilliam, K. and Z. Shalizi (1999), "Road funds, user charges, and taxes", The World Bank Research
Observer, Vol. 14/2, pp. 159–186
Hasnain, Z., M. Narmandakh, A. Sacks and M. Hanush (2013), "Mongolia: Improving public investments tomeet the challenge of scaling up infrastructure", PREM East Asia and Pacific Report, Vol. 74944
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Rastogi, C. and J.-F. Arvis (2014), The Eurasian Connection Supply-Chain Efficiency along the Modern Silk
Route through Central Asia Trade, ,https://doi.org/http://documents.worldbank.org/curated/en/730031468030581540/pdf/888910PUB0Bo
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4. Transport planning and governancefor better connectivity
Because institutional capacity is at the core of improving connectivity, improving capacity must be
central to any strategy to increase the connectivity of Central Asia. It is especially important for theregion to improve transport planning and governance given such challenging factors as being landlocked,
relatively low GDP and, in some areas, low population density. Because most large infrastructure projects
imply an increase in national debt, project assessment and selection should be especially carefully
addressed and optimised. In recent years the Central Asian countries have shown significant progress at
all levels of transport planning and governance, and have developed and adopted related strategies andpolicy frameworks at the regional and the national levels, with some room for improvements still
remaining. This chapter provides a performance assessment of the policy setting, strategies, andprocesses, as well as institutional planning and governance, in Kazakhstan, Kyrgyzstan, Mongolia,
Tajikistan and Uzbekistan and provides recommendations for further improvements. The chapter focuseson three essential dimensions that contribute to overall transport performance. The first dimension,planning, measures the extent to which an orderly, coherent, consistent and transparent process is inplace for developing transport policy and infrastructure. The second, governance and regulation,
determines how well transport infrastructure and networks are regulated and operated, with a focus onrail and roads. The final dimension, sustainability, measures progress towards resource efficiency,
environmental protection, reduction of health impacts and increased road safety. The chapter includes
suggestions for enhancing policies in each of these dimensions, in order to improve transport
performance and in turn foster the competitiveness of these economies.
The ITF transport policy and performance assessment framework used for this study relies on a sequenceof key steps in policy development and implementation, as well as on a number of key constituencies
and best practices for each step (for previous applications of the framework, see for example OECD,
2018a). For the assessment, qualitative indicators were collected during five fact-finding missions to theproject countries and from local stakeholders using a questionnaire. The indicators are scored inascending order on a scale of 0 to 5. On this scale, level 0 is assigned when a specific policy or framework
does not exist or is obsolete, while level 5 represents in most cases an ideal scenario. The ideal scenario
is rarely attained by ITF member countries and, therefore, provides ambitious targets.
In a comprehensive policy framework (Figure 40) all strategies and the policies have a common structure
and rely on a similar sequence of steps to maximise their efficiency in moving towards the set of goals
and objectives. The policy framework should state clearly those measurable goals and objectives andthey should comply with the national vision. The framework should also contain strategies for achieving
the goals and action plans for reaching the objectives. The action plans, in turn, should state what to do,
who will perform the actions and what the time frame is.
To ensure ongoing learning and adjustment of the planning process, there needs to be a feedback
mechanism built-in, including monitoring, performance evaluation and impact assessment. For themonitoring step, proper data need to be collected and made publicly available to promote transparency
and easier integration among stakeholders. The data should contain or allow calculation of indicators inorder to verify whether objectives have been met. The impact assessment analyses the effects of thepolicy framework on social, economic and environmental development. Finally, based on theperformance evaluation and the impact assessment results, the policy framework should be revised and

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improved. This could lead to revision of the objectives and the action plans, or even of the goals andstrategies, if the achieved results are contradicting the vision. Wide-range consultations with thestakeholders should be carried out, both at the drafting stage and when the policy framework is revised.
Figure 40. Policy framework and implementation cycle

Transport planning
The assessment of the planning dimension measures the extent to which an orderly, coherent,
consistent and transparent process is in place for developing transport policy and infrastructure. Goodplanning is essential to ensuring that transport spending, including investment and maintenance,
contributes to achieving national vision and goals. Without a clear and transparent process for
identifying, prioritising and delivering projects, countries risk implementing projects that do not provide
good value for money from the limited funds available. Good approaches to planning involve ongoing
monitoring to ensure that outcomes predicted before a project’s implementation are realised, and, if
not, that improvements are made for the development of future projects.
Figure 41 shows the average score for the planning dimension and the scores for each of the indicators.
The countries are at about the same level in terms of planning development, with leaders in someindicators. Mongolia, for example, is the only country that has an asset management system in place,
Uzbekistan has created a unique framework for project implementation and public procurement, andKazakhstan is a regional leader in in rail reforms. The following sub-sections of the report present thebest practices, explain the reasons for assigning the scores, and suggest recommendations for possible
improvements.
Figure 41. Planning: Dimension average scores and indicator scores
Average score for Planning Sub-dimension
Implementation and procurement

Transport vision
Asset management

Transport project selection

5
4
3
2
1
0
KAZ

94

KGZ

MNG

TJK

UZB

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Transport vision and national strategy are essential for transport sector
development

An assessment of transport vision and national strategies will allow each Central Asian country tomeasure its progress towards a clear and coherent transport planning framework, thus ensuring that thetransport strategy is aligned with the national vision. A national transport strategy provides
governmental bodies, stakeholders and citizens with information on the government’s goals, plans andguiding principles for the sector in the medium and long term. It also guides policy-makers by defining
which goals and objectives to move toward, which concrete actions to take when implementing thestrategies, and how to measure progress.
In order to be useful in such ways, a national transport strategy should contain certain fundamental
features. Some features apply to any national strategy, while others are specific to the transport sector.
To be comprehensive, in general a national strategy should include:Measurable objectives



Set of principles to guide the actions to reach the objectives

Action plansRoles and responsibilities



Budgets.

The development and implementation of a national strategy should also follow a policy framework, as
described above, including implementation and corresponding data collection, monitoring, performance
evaluation, impact assessment and revision via a feedback loop.
In a national transport strategy, special attention should be paid to intermodal interfaces (road-rail, roadport and rail-port) within a network-wide planning approach. A study conducted by Shepherd et al.
(2011) using a gravity model showed that by improving multimodal connectivity by 5%, Asian-pacificcountries would increase exports by around 4%, or between 2% and 6% per member economy.
National transport strategies in Central Asia

Only Kazakhstan and Tajikistan have a specific transport development strategy. However, some form of a
global strategy document defines strategies for the transport sector in a number of other countries(Table 11). In some countries, strategic plans exist for specific modes of transport or areas ofdevelopment (for instance, there are strategies for developing the railway sector in Kazakhstan,
Mongolia and Uzbekistan). However, most of the modal strategies only cover physical infrastructure.
Almost all strategies mention multimodal transportation and include plans to develop countries’ transit
potential.
Some countries are currently developing a transport strategy. For example, in Mongolia the previous“National Transport Strategy”, which was in place until 2016, has been replaced by a new policy anddeployment plan called “Intelligent Transport Systems Development for Mongolia”. The plan will
incorporate state-of-the-art ITS concepts and infrastructure over 2017–2037, with technology choices
over 2017–2022.
In general, most of the strategies start one after another, sometimes with a break of a few years.
Further, most of the countries lack a coherent strategy portfolio, which would include different planninghorizons (i.e. long-term global strategy up to 2050 and a more detailed one such as a five-year plan).

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Table 11. National strategies for transportation development
Country

Kazakhstan

Kyrgyzstan

Mongolia

Tajikistan

Uzbekistan

Strategy or related document

End yearState Program for the Development and Integration of the Infrastructure of theTransport System of the Republic of Kazakhstan

2020

The state program of infrastructure development ‘Nurly Zhol’

2019

Strategy – 2050

2050

State Program “Digital Kazakhstan”

2022

National strategy for sustainable development

2017

National strategy for sustainable development (project)

2040

Main directions of rail transport development

2020

Main directions of road transport development (project)

2021

Main directions of road sector

2025

Program of development of the civil aviation

2020

National Development Strategy

2021

The Action Plan of the Government of Mongolia

2020

General Plan for Roads

2020

Mongolia Sustainable Development Vision

2030

Strategic Development Plan JSC ‘Ulan Bator Railway’

2020

State policy on civil aviation

2020

National intelligent transport systems policy and deployment plan (project)2037

State task program of the Republic of Tajikistan transport complex development

2025

National development strategy

2030

Strategy and development plan for the transport sector (project)

2050

Action strategy on five priority directions of development

2021

Strategy for the development of the national railway operator

2019

Decree 'On measures to improve transport infrastructure and diversify foreign
trade routes for cargo transportation’2022

National Development Strategy

2021

Source: ITF

Figure 41 shows the results for the Transport vision indicator. Kazakhstan and Tajikistan have a dedicatedtransport strategy and are scored 3 and 1.5, respectively. The other countries in which the transport
strategy is under development or is a part of a much broader strategy with no specified measurable
objectives receive a score of 1. Almost all transport strategies and mode-specific strategies have missing
elements such as related budget, clear roles and responsibilities or guiding principles linked to thestrategy. Further, some of the strategies are relatively abstract and lack real, measurable objectives. All
countries monitor progress in implementation of the strategy at least once a year, but not all
consistently revise the strategies based on the intermediate monitoring results. None of the countries
performs an impact assessment of the strategy. Furthermore, none of the countries accounts for
uncertainty or has a national transport model to rely on in the planning process.

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National transport related strategies in Kazakhstan

In Kazakhstan the State program of infrastructure development for 2015–2019, "Nurly Zhol", wasdeveloped by The Ministry of National Economy of the Republic of Kazakhstan. The goal is ‘to form asingle economic market by integrating macro-regions of the country on the basis of building an effective
infrastructure hub principle for long-term economic growth in Kazakhstan, as well as the implementationof anti-crisis measures to support specific sectors of the economy in the event of the simultaneous
deterioration of external markets’. The program also contains 13 more-specific objectives, one of which
is directly related to transport: the establishment of efficient transport-logistics infrastructure based on a‘ray’ principle. Each objective in the program has a few quantitative indicators defining whether theobjective has been met. For freight transport, this includes a 37% decrease in the average travel time
between major hub-cities; reaching certain levels of freight flows on the Borzhakty–Ersai railway line andin port Kuryk; and reaching certain capacities on the Almaty–Shu route.
The program begins with an analysis of the situation in 2014, then defines major issues and possible
directions of corresponding measures. The program defines the sources and volume of its financing. The
amount of planned investments includes around USD 8.97 billion from international institutions andTenge 241.4 billion (which corresponded to approximately USD 12.5 million in the beginning of 2015)
from local business and national development institutions. The program states that the central and local
government authorities are responsible for implementation. It relies on population projections until 2020
but no different scenarios are considered. The program does not address multimodality directly;
however, the Borzhakty–Ersai railway line project implies a connection of the Caspian port Kuryk with therailway network.
Among completed projects within “Nurly Zhol”, about 2.4 thousand km of roads have been built orreconstructed, a new Zhezkazgan–Beyneu railway line was developed (along with corresponding logistics
infrastructure), and the main transport corridor from Western Europe to Western China was launched.
Additionally, in 2014 the Ministry of Investment and Infrastructure Development of the Republic of
Kazakhstan set up the State Program for Transport Infrastructure Development 2020, the main goal ofwhich is the establishment of modern transport infrastructure in Kazakhstan, as well as ensuring its
integration into the international transport system and unlocking the transit potential. The program
contains four main objectives: (i) creating a modern transport and logistics system that ensures high andefficient transport connectivity within the country, an increase in cargo traffic through the territory of
Kazakhstan and coordination of all types of land, sea and air transport; (ii) providing villages and small
cities with high-quality transport links; (iii) developing local transport infrastructure in the regions; and(iv) ensuring the integration of the transport infrastructure of Kazakhstan into the international transportsystem. The program sets out four indicators corresponding to the objectives and defines the budget.
The latter accounts for the state financing at different levels, own and borrowed funds of the national
railway operator Kazakhstan Temir Zholy (KTZ) and Aktau International Sea Trade Port, borrowed fundsof national maritime operator Kazmortransflot, as well as funding from public-private partnerships,
private investments and fees collected from toll roads.
The program contains sections devoted to each of the transport modes, including rail, road, aviation andsea. For each mode the current situation and challenges are described, the mode specific objectives are
set out and several quantitative indicators are suggested to measure whether the objectives have been
met. A separate section is dedicated to development of the country’s transport and logistics system andits integration into the international transport system. The measures suggested by the program include
not only infrastructure-related ones but also policies, improvements in the logistics sector and in

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technical and legal standards, the establishment of an asset management system, and conceptualchanges in financing the transport sector, capacity building, etc.
The program mentions the importance of enhancing multimodal transportation, taking into account the
optimal schemes of interaction between involved structures, the distribution of functions andresponsibilities, the development of regulations for contractual production and structural relationships
between participants including carrier, multimodal transport operator, consignors and consignees. The
program suggests that KTZ act as a multimodal operator, interacting with international partners andensuring the unification of tariffs for all types of transport and the optimisation of costs for freight transit
and customs clearance.
The program’s implementation plan is divided into two periods: 2014–2016 and 2017–2020. For the first
period, a detailed results assessment was conducted and released to the public (The Ministry of National
Economy of Republic of Kazakhstan, 2016). The assessment analyses whether the desired values of theindicators for each objective were achieved. The review shows progress in most dimensions; however, it
mentions that there are no planned values for a number of target indicators and some indicators are notbroken down by year, which makes it difficult to assess the degree of their achievement. The review also
lists reasons why some of the objectives were not achieved. The reasons include external factors such as
reduced purchasing power in Central Asia due to devaluation of national currencies, sanctions between
Russia and the European Union, and a reduction of transit from Uzbekistan and Tajikistan due to a shift
in flows and reduced demand. This shows the importance of setting various future scenarios andconducting an uncertainty analysis, which is currently missing in both programs.
National transport related strategies in Tajikistan

Tajikistan should be acknowledged for an exceptional National Development Strategy (NDS) that is in linewith best practices and includes all the essential elements (measurable objectives, guiding principles,
action plans, roles and responsibilities, budgets). Most of the NDS’s stated objectives are measurable,
such as generating GDP growth of at least three times or the reduction of the export concentration index
for the three main products from 83% to 58%. The strategy is based on three principles: preventive
measures (reducing the vulnerability of future development), industrialism (increasing the efficiency ofusing national resources) and innovativeness (development based on innovations in all sectors). The
strategy was developed taking into account three scenarios: inertial, industrial, and industrial-innovative.
The strategy contains clear action plans for three time periods (until 2020, 2025 and 2030) and defines amonitoring framework. The strategy also clearly defines the roles and responsibilities of thegovernmental bodies in terms of control, monitoring and data collection. The strategy outlines the total
budget and the amounts of forecasted funds for a 15-year period from the private sector, the statebudget, and development partner contributions.
The NDS of Tajikistan covers the transportation sector only briefly. The main goals in the transport sector
are: the construction and reconstruction of transport infrastructure; the creation of transit transport
corridors; the development of the transport sector, aimed at creating new jobs and improving theefficiency of the national sectors of economy and the quality of life; ensuring the efficient operation oftransport and transport infrastructure that contributes to the socio-economic development of various
regions of the country; preservation and development of a network of local airports, including small andmedium-sized aviation to ensure air transport affordability for people of all regions; ensuring theaffordability of public transport for people with disabilities; and minimisation of the transportationindustry’s negative impact on environment and human health.
A separate strategy dedicated to transport, State Task Program of the Republic of Tajikistan Transport
Complex Development until 2025, was first developed in 2007 and is updated every two-three years. It
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includes sections dedicated to the development of public transport, civil aviation, the road and rail
network, and multimodal shipments, as well as a program of enhancing environmental sustainability anddigitalisation of the transport system. The program is based on four principles: (i) coherence among
allocated resources, competence and responsibilities; (ii) efficient use of resources, based on managing
market mechanisms; (iii) opportunities for co-financing the projects; and (iv) the leading role of the statein creating the legal, informational and other conditions necessary for transport system development.
The program defines objectives, action plans, and the cost of each action, and defines sources ofinvestment depending on the transport mode. Many infrastructure projects announced in the program
have been already implemented (90% for the short-term part), including construction of the road fromDushanbe to the Uzbekistan border, the international terminal ‘Dushanbe Airport’, and the Vahdat–
Yavan railway line.
While the program covers the most important topics and many projects have been already
implemented, there is a room for potential improvements. The roles and responsibilities of thegovernmental bodies can be also incorporated into the program, as well as information on thecorresponding data collection, monitoring frequency and procedures, and impact assessment. Similarly
to the NDS of Tajikistan, objectives, when possible, should have attributed indicators that would help todefine if the objectives are met and to what extent. The program should reflect all the transportation
related goals stated in the NDS.
Recommendations on national transport strategies

Summing up for all the countries, to move forward in developing their national transport visions, thecountries are recommended to ensure that the transport strategy:Is adopted and contains measurable objectives, guiding principles, action plans, roles andresponsibilities and related budgets. The set of measurable objectives allows defining if thegoals are achieved and to what extent. For example, an objective related to travel time
reduction goal is the decrease of the border crossing time to a certain time by 2020. There areusually various ways to achieve an objective, and the choice of a certain way should rely on thepolicy principles defined by the government. These principles depend on the willingness of thegovernment to open the market; the degree to which the government is ready to involve theprivate sector in financing, management and operation, and to subsidise certain actions andprojects; commitments to international agreements; vision of the role of transport; etc. Basedon the guiding principles, action plans should be defined to state what to do, who will performthe actions and what the time frame is. “What to do” includes institutional measures; planningand investment measures; operational, regulatory and licensing measures; and pricing, cost
recovery, taxation and subsidy measures. The roles and responsibilities of the governmental
bodies should be defined (stating who will perform the actions), and the budget should beallocated to ensure that the state is capable of following the strategy.



Takes transport systems perspective and reflects the national vision and goals. The systemperspective means that the strategy contains not only infrastructure-related plans but also
strategies for wider, non-physical infrastructure. Examples of national goals that should bereflected in the transport strategy are improved connectivity and accessibility, economic growthor creating new jobs.

Kyrgyzstan, Mongolia and Uzbekistan are recommended to develop national transport strategies astransportation is an increasingly important sector in Central Asia and deserves its strategic vision to be
set out.

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Tajikistan should consider including in their national transport strategy indicators to measure whether
objectives have been met and defining explicitly in the program the roles and responsibilities of thegovernmental bodies responsible for the program implementation. The program should reflect all thetransportation-related goals stated in the NDS.
To improve their strategies even further, all five countries should consider:100Developing a national transport model to assess needs. The model should be used as the basis
for strategic planning, scheme appraisal and policy evaluation by government bodies, local
authorities and researchers. Such a model estimates the demand and matches it with theexisting or planned supply, providing estimates of current and future traffic flows. Most choices
for freight movement are based on travel time and cost minimisation under some constraints
depending on the commodity type, such as storage costs, implications of delays, etc. In the caseof regional and international studies, different layers driving the freight movements should betaken into account, with a focus on trade flows, mode and route choice (Ortúzar andWillumsen, 2011).

Supporting multimodal solutions. As suggested in the benchmarking section, the best strategies
focus on intermodal interfaces. Road-rail solutions are of the most importance for landlocked
countries but, access to foreign ports can also be a solution – in which case the strategy should
address road-port and rail-port interfaces. Intermodal connectivity means all the transportmodes are working together seamlessly. To achieve this, infrastructure and regulatory
bottlenecks should be identified and analysed first. The corresponding policy measures should
include either removal of these bottlenecks or handling them. Usually the removal of abottleneck is a question of sufficient investments in infrastructure, new equipment for
facilitating the transfer, and coordination among the supply chain members. Sometimes,
however, a removal is not economically feasible and managing the bottleneck through, forexample, peak-load pricing could be a more efficient solution. Collaboration of the supply chain
members and coordination of their actions with the aim to increase mutual benefits canincrease the efficiency of the intermodal solutions and remove or decrease bottlenecks(Prentice, 2003). Collecting and sharing information becomes crucial in this case.



Relying on a network-wide planning approach with horizontal co-ordination across planningbodies. Horizontal governance approaches have been developed in the last two decades inorder to connect different parts of the public sector in pursuing of policy goals. Co-ordination
can take various forms, such as consultations among departments in a process of decisionmaking, or agreements mitigating conflicts of competencies. The balanced distribution offinancial resources and responsibilities is crucial for successful co-ordination and cooperation
across the planning bodies.



Suggesting robust plans for various future scenarios, relying on a rigorously collected data,
economic and transport models, and consultations with stakeholders. The main purpose ofembracing uncertainty while developing a national strategy is to demonstrate that eachsuggested decision will move developments towards the national vision, irrespective of how thecontextual future unfolds. That is, handling uncertainty is a matter of helping the decision
maker to make a decision that is robust in the face of various future states. For this, different
scenarios should be defined, and the strategies and planned measures should be tested against
them. This is an especially complex task because both the decision maker and exogenous
factors can affect the future (Lyons, 2018). Since the strategy deals with the future, to berobust, it should take into account possible uncertainties. Wide-ranging consultations with

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stakeholders should be carried out when possible future scenarios are being defined, at thestrategy drafting stage, and when the policy framework is revised. Engagement of as many
informed views from different perspectives as possible leads to a better-informed position indecision making (Box 10).
Finally, ensuring that a regular impact assessment of the strategy – and consequent revisions
based on the performance evaluation and impact assessment results – is part of all strategies.
An impact assessment helps to ensure that a strategy maximises the contribution that it makes
to sustainable development along economic, environmental and social dimensions, while
minimising potential adverse impacts. The impact assessment process might integrate
appraisals of the social, environmental and economic effects of the policy measures.

Box 10. The National Transport Strategy and Strategic Transport Projects Review of Scotland
The National Transport Strategy (NTS) of Scotland in 2006 set out a vision for 2026, with the main
goal being to increase sustainable economic growth. The NTS focuses upon five high-level objectives
including improved journey times and connections; reduced emissions; and improved quality,
accessibility and affordability of transport services. In 2008, the NTS was complemented by the Strategic
Transport Projects Review (STPR), which became a major action plan for delivering the NTS. It identified
29 rail and trunk-road investment priorities over the period to 2032.
In 2016 the Scottish government announced a full review of the NTS with the main purpose of providing
a vision for Scotland’s transport system for the next 20 years, suggesting ways to achieve it, andproviding a base for an update of the STPR. The review (NTS2) aims to be collaborative, engaging andevidence-based. This implies working with key stakeholder organisations through functional andthematic working groups, reaching out to the wider stakeholder community via an online survey andconsultation on a draft of NTS2. NTS2 in draft is expected to go out for consultation in early 2019, withthe finalised NTS2 expected to be adopted in mid-2019. In December 2016 an early engagement survey
was undertaken. A total of 614 responses were submitted, of which 76 were from groups ororganisations, including 18 private sector representatives, and 538 from individual members of the
public. At that point the programs barely mentioned uncertainty and did not consider various futurescenarios.
In June 2018, the UK Department for Transport published a consultation document for its transport
appraisal and modelling strategy. The document set out five priorities, one of which is reflecting
uncertainty over the future of travel. Responding to this call, Transport Scotland started developing a
scenario planning tool and process so as “to be able to consider candidate policies in the face of
uncertainty over the future in order to support robust decision making that can set a direction of travel
towards achieving the NTS2 outcomes”.
The tool translates combinations of selected values of drivers of change into output measure values, sothat the combinations constitute future scenarios. The tool can be used to produce multiple scenarios,
and it helps to identify the extent to which policies are likely to achieve the NTS2 targets given theuncertainty faced.
Development of the scenario planning tool and process involves an ongoing interaction between the
study team, Transport Scotland and the wider group of NTS review stakeholders. Two familiarisation andbrainstorming meetings with stakeholders took place to introduce the concept and one, the key event,to address the input drivers of change and output measures for the scenario planning tool.

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Eight main drivers and thirty four future scenarios were produced; these were then reduced to a
manageable set of eight plausible futures representing the uncertainty space against which policies canbe tested. The work group is currently developing a tool using a quantitative, elasticities-based model.
The tool will allow the team to translate a set of input driver values into a set of output measure values,
helping to assess and compare different future states of the world in relation to alignment or not with
NTS2. Therefore, the tool will help decision-makers assess each policy’s effectiveness depending on how
the future unfolds.
Source: Lyons et al. (2018).

Transport project selection should rely on quantitative models and decisionmaking tools, and it should account for risks and uncertainties

Transport project selection is extremely important for the countries as all of them rely, at least partially,
on foreign aid. A study published by the Center for Global Development (Hurley et al., 2018) analysed thedebt implications of the Belt and Road Initiative from a policy perspective for the participating countries.
It determined that several countries can significantly suffer from debt distress, among them Kyrgyzstan,
Mongolia and Tajikistan. China is the largest single creditor of Kyrgyzstan and Tajikistan. From 1992 to
2018, Kyrgyzstan received more than USD 9.8 billion in foreign grants and loans. Of this, 24.9% went totransportation projects. The Kyrgyz economy relies heavily on foreign aid, with a significant amount ofstate debt (4.4 billion USD), of which 85.6% is external. The government expects to spend 28 billion Soms
(approx. 400 million USD) on servicing the national debt in 2019, up from the 23.7 billion Soms spent forthe purposes in 2018. Tajikistan’s debt to China accounts for almost 80% of the total increase in
Tajikistan’s external debt over the 2007-2016 period. Despite this, the country is planning to increase its
external debt, both at concessional and non-concessional rates, to pay for infrastructure investments inthe energy and transportation sectors, including elements of the BRI. Mongolia is highly dependent onlarge infrastructure investments in the transport and energy sectors. China is planning to transfer to
Mongolia around USD 30 billion in credit for BRI-related projects over the next years, which will increase
Mongolia’s debt substantially and might even lead to the country’s default (Hurley et al., 2018).
Therefore, the countries should develop their own capacity to evaluate and prioritise projects to be able
to choose only the essential ones.
As Figure 41 shows, countries score relatively low on the Transport project selection. Only Kazakhstan
and Uzbekistan have a clear methodology for project selection that includes explicitly defined selection
criteria. In the case of Kazakhstan, order No. 129 of the Minister of National Economy, December 5, 2014
– “On approving the rules for developing or adjusting, conducting the required examinations of theinvestment proposal of a state investment project, and planning, analysis, selecting, monitoring andperformance evaluation of budget investments and determining the feasibility of budget lending” –provides such a framework. The document provides guidelines on cost and benefits assessment, risk anduncertainty analysis, and organising a discussion with stakeholders. The main criteria are the presence oflong-term cargo (the transportation of which will be most advantageous in terms of speed and cost ofdelivery) and the congestion of existing transport hubs. In Uzbekistan the project selection is regulated
by a decree about the national program of development (projects approvals, coupled with the regional
development) and criteria for project choice based on priority ranking, compliance with the national andregional development goals, and financial sources.
In Mongolia the project selection process is regulated by Budget Law 28. The National Development
Agency assesses infrastructure and development investment projects with a value of more than 30
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billion Mongolian Tugriks. The economic benefits and social significance of each project require approvalby the Ministry of Finance. There is no document defining clear standards for project prioritising, sourcesof funding, procedures, and project assessment criteria.

Box 11. Chile investment and project appraisal system
In Chile, all central and regional public bodies willing to undertake an investment project, including but
not limited to the transport sector, must apply to the National Public Investment System (SNIP) for
funding. Chile’s system gives a major role to the social appraisal of publicly funded projects andprogrammes. The Planning Ministry (Mideplan) applies a system of checks aimed to verify, first, theformal admissibility of the project and, second, its contribution to a positive welfare change.
A key feature of the project appraisal procedure is the institutional separation between the entity
promoting the project and Mideplan, the institution in charge of taking the funding decision, as well as ofboth ex-ante and ex-post project evaluation. This institution is responsible for regulating the procedures
for appraising projects that seek public funding, developing and managing an information system forinvestment initiatives, developing project preparation and appraisal methodologies and training public
officials. Project appraisal is carried out according to a multistage assessment, with different filters
depending on the phase of the project implementation as well as the complexity of the project. Finally, astrong emphasis is put on standardisation of criteria and formats for the information presented,
facilitating project comparison and ranking. The methodology, standards and norms are widely
disseminated and systematically taught to public officials at all levels of government, which has
contributed to an appraisal culture permeating the Chilean public sector.
Source: Gómez-Lobo (2012).

Most of the countries take into account the affordability of transport projects and their budgetarycoherence, and pay attention to compliance with the national strategies and vision. Most countries also
take into account the use of information and communication technologies, the need for physical and'soft' infrastructure for each project, and the results of discussions with the stakeholders. Few countries
rely for project selection on simple transport models; on long-term forecasts in economics, trade andindustrial production; and on public opinion.
Data are collected in different formats by different agencies and are often not publicly available. For
example, rail data are usually collected by the national railway operator and can be requested by thecoordinating ministry or public authority but often are not openly accessible.
For rail, the countries collect data on railway sector investments and revenues, passenger and freightturnover, and technical characteristics such as network length, maximum speed, electrification, etc. For
the road sector, the countries collect data on total turnover, road conditions, public investments in road
construction and maintenance, as well as statistics on road accidents. The data on domestic road freightis usually quite poor due to difficulties in its collection, as it would require surveys of shippers, freight
forwarders and truck drivers.
With the exception of Kazakhstan, publicly available transport and transport-related data collected in the
countries are usually aggregated. Kazakhstan collects and publishes statistical data on transport showing
specified shares of import, export, and transit, disaggregated by commodity type. It also has detailed
data on international road freight, which include the number of permissions given to foreign companies,
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revenues from cabotage, etc. The rest of the countries do not publish transport data disaggregated bycommodity types or by a trade partner. Tajikistan does not publish any data on GDP contributions byeach of its administrative regions, while GDP could be used as a proxy for modelling transport generation
and attraction. Development partners such as the ADB, the World Bank and GIZ collect data in the region
and perform surveys on border crossing, infrastructure quality, trade, etc. However, none of the fivecountries perform transport surveys with private respondents, shippers, freight forwarders or truck
drivers; therefore, the data essential for building a national transport model are not available.
Most of the countries apply cost-effectiveness analyses, but cost-benefit analysis (CBA) and multiple
criteria analysis (MCA) are rarely used. The consistent implementation of risk and uncertainty analysis
frameworks across different projects is also missing.
Recommendations on project selection

Central Asian countries need to develop their internal capacity to assess and select projects which
comply with the national vision and strategies. Key steps in this direction include:First and foremost, make sure that the project selection framework exists and is transparent,
evidence-based and objectives-led. The framework should contain clear selection criteria andminimise the risk of developing inconsistent standards. It is important that transport projects
are proposed and assessed consistently, realistically and rigorously to make the best use of thelimited funds available. The first step in the process of selecting viable projects is the generationof alternative options to address the problems or needs identified (e.g. physical, non-physical,
information and communication technologies). A consistent framework for transport options
generation should include a clear methodology for decision-making, such as socio-economic
analysis resulting in a cost-benefit analysis (CBA) of each option. Based on this assessment,
portfolios of priority projects should be developed. Once the project is implemented, theassessment cycle does not stop – rather, monitoring and evaluation are foreseen to ensure thatthe expected outcomes are achieved.



Ensure that projects are linked to the overall transport vision and that they fulfil national
objectives. In addition to CBAs, indicators for informing decision making are required to reflect
the potential benefits of projects in meeting the goals of national policy towards reducing socialand regional inequality.

In the longer term, the countries are recommended to:

104Collect, update and share regularly data on freight and logistics. For decision making on freight
connectivity, data are crucial. Freight data could be classified by mode of travel, commodity
type, distance covered and tonne-kilometres transported, jurisdictional and administrative
unites crossed, etc. The data may be obtained from direct and indirect sources. The indirectsources are often government entities that deal with trade, tax, and customs. The directsources of information are the stakeholders involved in freight, and the information can beobtained by surveying them or using automated methods of data collection and informationand communications technologies. However, although the indirect data are relatively easy toobtain, they do not provide all the necessary information since they usually miss the domestic
freight flows. Vehicle-mounted, GPS-based automatic data, automatic number-plate
recognition, and other reporting systems can offer continuous information on shipments. The
whole process being automated allows reducing the data collection costs in the long run. The
challenge, however, is to build the trust between the government and the data generators sothat an automated system of data retrieval can be implemented. Surveys of shippers, freight

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forwarders and drivers can complement the other sources of data, as well as additional
information from waybills and other instruments that accompany consignments, if available.
Data sharing, at least within government agencies, leads to cost savings as it helps to prevent
duplication in data collection efforts (Haider et al., 2008).
Develop and use for project selection mathematical models of freight flows. Freight trafficmodels are an especially important tool for performing quantitative assessments of transport
projects. They model demand and match it with the existing or planned supply, providing
estimates of current and future traffic flows.



Apply tools and models supporting decision making for project selection. Tools and models
supporting decision making for project selection include: (i) strategic planning tools to assesslong-term needs and effects; (ii) carrier and shippers cost and performance analysis tools that
estimate the operational performance and costs; (iii) beneﬁt/cost analysis systems; (iv)
economic models measuring economic impacts, responsive demographic, and economicchanges over time; and (v) financial impact accounting tools assessing financial streams.



Identify, analyse and treat risks and uncertainties. While models provide valuable data that
inform the decision-makers, the forecasted values can significantly deviate from the actual
ones. Also, transport project outcomes are subject to risks and uncertainties related tooverruns; unknown future trade volumes; economic, political and institutional changes; anddisruptive technologies that can affect the viability of the projects. Given that the freighttransport projects can have significant socio-economic and environmental effects at local,
regional and national levels, dealing with uncertainty and risk is especially important and should
be an integrated part of the project selection process to support more informed decisionmaking. ‘Dealing’ means that risk and uncertainties should be identified, analysed and treated.
Box 12 presents some risk management tools applied in Europe.

Box 12. Risk management tools applied Europe
Working with its partners, SNCF Réseau, an establishment within the French National Railways Company,
has developed tools to support project management. The first tool is a risk matrix. The method calls for
identifying the project constraints and their potential impacts on the costs, implementation and global
performance of the project over its lifecycle. Risks are weighted depending on their potential impacts
and probability. If a risk is unacceptable, it should be (i) reduced by acting on its causes or consequences;(ii) transferred to an insurance company or via a contract; or (iii) covered by a financial provision. Due toa lack of sufficient statistical data the risks are usually identified, assessed and treated based on experts’opinions. This systemic approach results in a reduction of the overall cost and affects positively
completion and quality. This method is used by public and private clients in addition to other kinds ofanalysis such as outline proposals, impact assessment, public debate, public enquiry, final design, etc.
The second tool is a context assessment whereby a territorial analysis is carried in order to better
understand the socio-economic context and the players in the sectors concerned by the rail route. This
analysis particularly consists in listing the stakeholders and their positions regarding the project. This
allows identifying potential risks of controversy around the project, its territorial impacts or risk of delay.
The client then tries to optimise its infrastructure project by integrating demands or explaining toresidents and other concerned parties why these cannot be taken into account.

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Source: Zembri-Mary (2017).

A few European countries have applied a recently developed ‘reference class forecasting’ method thataims to reduce risks related to human bias, which includes psychological and political-economic factors.
A psychological factor manifests itself in an optimism bias, whereby most people judge future events
more positively than the actual experience suggests. Political-economic factor, or strategic
misrepresentation, is the intentional overestimation of the project’s benefits and underestimation of its
costs with the purpose of increasing the probability of the project being approved and funded. The‘reference class forecasting’ method allows tackling both these factors, as well as any other kind of
human bias. The method consists of three steps: (i) identifying a statistically meaningful reference classof past projects similar to the planned one; (ii) establishing a probability distribution for the outcomes ofthe selected reference class; and (iii) comparing the planned project with the reference class distribution,
to identify the most probable outcome of the project. This method requires good empirical data forfinding the probability distributions. The method has been successfully applied to several transportation
projects including Edinburgh Tram and London’s £15 billion Crossrail project.
Source: Flyvbjerg (2008).

Implementation and procurement requires maximum transparency and efficiency
in engaging the private sector

This indicator measures the rigour of the process for implementing transport projects. A robust process
for decision-making in the implementation of transport projects is fundamental to ensure that planned
outcomes are met and that public funds are spent efficiently. In the absence of rigorous processes, risks
linked to partial implementation of projects, unclear responsibilities across government bodies,
corruption and diversion of funds can arise.
The main challenges faced in public procurement are associated with corruption, cost inefficiencies anduncertainties leading to risk of budget overruns, lower quality and project delays.
Although involving private investments in project implementation brings benefits, at the same time it cancreate new pitfalls. Public-private partnerships (PPPs), which are the most common form of private
participation in transport infrastructure projects, can improve cost efficiency but cannot push thegovernment’s long-term borrowing constraints or improve allocative efficiency (that is, to prevent
building bridges or roads ‘to nowhere’). PPPs can help solve the problem of financing but not of funding.
Therefore, the governments should pursue private investments for cost efficiency only.
There is a need for an adequate competition for bids and also throughout the duration of the contract sothat the PPPs deliver value for money. Lack of sufficient competition for major infrastructure projects(not only for PPPs) leads to more costly projects than necessary. Even where there is an adequate
competition for bids, bidders still face lack of information to assess risks and, therefore, tend tooverestimate risk. Consecutively, investors will ask higher than necessary returns and suppliers will
demand more contingencies.
Some of the countries, such as Uzbekistan and Kazakhstan, have established a framework for project
implementation and public procurement, while all countries have adopted laws regulating the
procurement process. The implementation process is mostly decided at an individual project level.
In all Central Asian countries, tenders are performed through a single public website, which also contains
legal and practical information for the bidders. While in some countries all tenders must be performed
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through the official website (e.g. Mongolia), in other countries it does not apply to all tenders (e.g.
Tajikistan plans to digitalise all public procurement trades in 2019). In Kyrgyzstan, new clauses wererecently added to the law “On Government Procurement” to increase transparency and efficiency. An
electronic portal has been created and public procurement classifiers have been developed, includingclassifiers for transport equipment and other transport-related products such as vehicles and spareparts, locomotives and rolling stock, airplanes, tools, etc. In Mongolia a Provisional Working Group wasorganised to reduce corruption in public procurement by the Independent Authority against Corruption
in Mongolia, an independent government body established to carry out various anti-corruption activities
in the country.
Kazakhstan has recently advanced its procurement process to fight corruption and optimise the process.
The new law of 2016 on Public Procurement relies on the principles of equality, free competition, nondiscrimination and the independence of the supplier vis-à-vis the public buyer. The law contains a section
aimed at helping to enhance transparency and procedural fairness. The government also updated theappeal mechanisms for the oversight of the procurement process and introduced a monitoringmechanism to foster integrity. However, state-owned enterprises are often exempted fromrequirements imposed by the law and can organise purchases according to their own rules (OECD,
2017a).
Tajikistan adopted in 2018 a new law “On Public Procurement” and joined the World Trade Organisation(WTO) Agreement on public procurement. It has also created and maintains a database of companies
linked to corruption in the past. Mongolia and Kazakhstan are members of the International Federationof Consulting Engineers, or FIDIC (an international standards organisation best known for the FIDIC familyof contract templates). In 2017, Uzbekistan established the National Project Management Agency under
the President with the mission of increasing the efficiency and securing the transparency of national andregional programs and investment projects throughout the country, and of managing a single
information space for public procurement. The creation of such an agency helps in the harmonisation of
the corresponding regulations across the sectors (see Box 13 for more details on the agency).
Some of the countries already have experience in brining private investments via public-private
partnerships. For example, Kazakhstan used the PPP format in the construction of a network of traffic
cameras in Astana. The PPP agreement was signed between the Akimat of Astana, the local police service
and a consortium of Kazakhstani companies. In Mongolia, the Erdenet–Ovoot railway project was started
in 2015 as build-operate-transfer concession. Under the PPP concession agreement with the Mongolian
government, at least 30% of subcontract work must be carried out by Mongolian companies. In
Kyrgyzstan the law on PPP was adopted a few years ago, although it has not yet been applied in thetransport sector.
Most of the countries monitor project implementation and conduct ex-post assessment. In Kazakhstan
the government checks the effectiveness of the implementation of allocated public funds and provides adetailed report on the results of project implementation every year. These results are used in theimplementation of new projects. In Tajikistan the implementation of transport projects is carried out by
the centres for the implementation of projects, which are created by a government decision for eachproject or a group of similar projects. The Ministry of Transport and the centre for the implementation ofprojects in the field of transport review and finalise the project tasks during the project implementation.
For example, in the project of rehabilitation of the Dushanbe-Uzbekistan border pedestrian crossings
were not taken into account in some settlements. During the project implementation, the Ministry andthe centre made changes in the project increasing pedestrian crossings. The governmental bodies
performed similar reviews for the rehabilitation projects of the Dushanbe-Chanak and other roads.

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Recommendations on implementation framework and procurement

To summarise, most countries have an implementation framework for transport projects which
considers alternative procurement. To improve this dimension further, the Central Asian countries needto:Make sure these frameworks are transparent and assign clearly roles and responsibilities.
Appeal and monitoring mechanisms should be in place and the number of exceptions should be
minimal, aimed at reducing practices when the state-owned enterprises organise purchases
according to their own rules.

Harmonise the procurement and implementation frameworks across different transport modes
and sectors. The most advanced processes for implementation consider a variety ofprocurement methods and tailor the choice of procurement based on project characteristics
and financial considerations. Rigorous processes to guide these choices have some common
guiding principles such as value-for-money, coordination of investment, administrative capacity,and long-term financial sustainability.

To improve the framework on a longer term, the countries are recommended to:108



Pursue private investments for cost efficiency. Private finance needs to be pursued on the right
merits to avoid political unsustainability of private investment in infrastructure. PPPs, which are
the most common form of private participation in transport infrastructure projects, canimprove cost efficiency but cannot extend the government’s long-term borrowing constraints or
improve allocative efficiency (that is, to prevent building bridges or roads ‘to nowhere’). PPPs
can help to solve the problem of financing but not of funding. Therefore, the governments
should pursue private investments for cost efficiency only.

Ensure governmental control over the entire term of the PPP contract. Continuous pressure on
efficiency and prices is necessary throughout the contract. Even when there is an adequate
competition, bidders still lack the information necessary to assess risks and, therefore, tend tooverestimate risk. Consecutively, investors will ask for higher-than-necessary returns andsuppliers will demand more contingencies unless continuous pressure exists. For example, inthe case of sea and air ports, the competitive pressure often comes from other ports or fromstrong user reactions to changes in service levels.



In areas where continuous pressure for efficiency is lacking, use alternative financing models. In
such areas there is a concern that PPPs may not lead to value for money. An alternative to the
PPP in the absence of continuous pressure for efficiency is a “regulatory asset base” (RAB)
model. In the RAB model an independent regulator collects information about the regulated
firm’s performance and sets periodic efficiency incentives. The RAB offers a solution for asustainable involvement of private investment in public infrastructure such as motorways.
Nevertheless, the application of RAB requires strong institutional maturity and credibility (theassurance of a true independence of the regulator), which may need yet to be developed inmany developing countries.



Aim to reduce uncertainties for investors and suppliers during the bidding phase in order tomake projects substantially cheaper. For example, various measures can help to reduce
uncertainties related to the construction: preparing a fully costed reference design before thetendering and not only an outline design; giving some freedom in the reference design in places

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where the private sector could innovate; building a risk register before tendering, and run it as a
joint risk register with bidders during tendering.


To prevent corruption and maximise the value for money of investments, the countries should
consider adopting international standards like the OECD Anti-Bribery Convention, as well as
following international guidelines such as the OECD Guidelines for Fighting Bid Rigging in Public
Procurement, the G20/OECD Principles of Corporate Governance and the OECD Guidelines forMultilateral Enterprises, which make up a toolkit that allows countries to manage the risks andget the most out of foreign infrastructure investment. These instruments are detailed within theOECD Business and Finance Outlook and are available to OECD members and non-members
alike (OECD, 2018c). To maximise the value for money of private investments the Public Sector
Accounting Standards (IPSAS 32) can be also adopted.

To increase projects’ efficiency, innovations should be stimulated through strategic alliances. For theCentral Asian countries, which have had a market economy only for three decades, it is especially
important to increase transparency in procurement as well as develop and apply anti-corruption
mechanisms.
Box 13. The National Project Management Agency under the President of the Republic of Uzbekistan
The National Project Management Agency under the President of the Republic of Uzbekistan is a public
institution set up in accordance with presidential decree PD-3150, “On the Establishment of the National
Project Management Agency under the President of the Republic of Uzbekistan”, signed on 27 July 2017.
The Agency:Organises and coordinates the realisation of national and regional (local) programs andinvestment projects;

Scrutinises and monitors investment programs;

Conducts comprehensive technical and economic analysis of projects, looking for signs ofcorruption, cartels, and illegal agreements;

Issues conclusions on the investment programs of Uzbekistan;Introduces leading information and communication technologies in government bodies andother public organisations, thus ensuring the operation of the Integrated National Information
System of Project Management of the Republic of Uzbekistan;Promotes competitiveness and the creation of a favourable business environment; and

Facilitates training and professional development for specialists in project management (itprovides complex expertise and acts as an accreditation centre).

Through its mission, the Agency boosts the efficiency and secures transparency of national and regional(local) programs as well as investment projects throughout the country, and a single information spacefor public procurement is being established. The Agency is open for communication with the business
community and government bodies to improve project/design works and perfect the investment climate
in Uzbekistan.
Criteria applied by the Agency for project choice include:

Priority ranking;

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

Compliance with the national and regional development goals; andFinancial sources.

The agency hired professionals from the best local and international institutions, and also attracted
partners from other countries who had advanced similar projects, such as Georgia. The agency achieved
success making the project selection, implementation and public procurement procedures moretransparent and reducing possibilities for corruption.
Source: https://napm.uz/en/about/info/ (last accessed 19.10.2018)

National asset management systems need to be developed and institutionalised

Transport infrastructure networks represent one of the principal asset systems held by national andregional governments. When budgets are tight, funding for road maintenance is often postponed on the
expectation that a lack of maintenance will not necessarily lead to immediate asset failure and network
disruption. The cumulative impact of deferred maintenance, however, increases asset and network
vulnerability to local or systemic disruptions. The state of the network, future impact on the user, andnecessary funding to correct the condition will be made transparent by an asset management system. As
Chapter 3 shows, the road and rail networks are slowly recovering from years of insufficientmaintenance, and the issue of effective management of transport assets is still highly relevant for Central
Asia.
The overall aim of asset management is to optimise the service level delivered by infrastructure over its
life-cycle or at acceptable cost. The focus of management should be on value to users or customers andnot solely, nor even primarily, on cost or asset replacement cost perceived by the infrastructure
provider.
The maintenance needs of a road network can be predicted from a set of structural characteristics,
including age, traffic, design standards, construction quality and subsequent maintenance, taking into
account climate conditions. Maintenance required for paved and unpaved roads is usually different. For
paved roads, there is a trade-off between higher investment costs at the time of paving and lower
maintenance costs. Unpaved roads, such as gravel roads, cost much less than paved surfaces to build but
require more frequent maintenance, especially in areas with extreme weather conditions such as heavy
precipitation or large variation in temperature (OECD, 2017a). The latter is especially relevant for Central
Asia.
Currently, only Mongolia has an asset management system in place; the data are collected annually anddata management, control and analysis are performed. However, the asset management system is not
yet integrated into decision-making procedures, and is mainly used for monitoring (ADB, 2018). In therest of the countries, road asset management system frameworks are under development with the helpof the multilateral development banks and as part of the Central Asia Regional Economic Cooperation(CAREC) program. The development partners also help to organise data collection processes in the
countries.
While the countries are focused on data collection, the other essential parts of the asset management
system and institutionalisation of the system are missing. Additionally, as the previous chapter shows, allfive countries manage their road assets with insufficient budgets, which often means deferred
maintenance of roads or maintenance of only trunk roads. Kazakhstan recently started applying results-

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based budgeting, which allows defining appropriate targets based on the available budget andmonitoring achievement of the targets.
Several examples can show how the countries are advancing their asset management systemdevelopment. The Ministry of Transport and Communications of Kyrgyzstan, together with the State
Property Fund, plans to develop statistical classifiers of machines and equipment (transport, information,
computer, telecommunication and other related equipment) to form the state statistical classifier ofassets. In addition, the state has approved regulation on an inter-departmental automated information
system called the “Unified Register of State Property of the Kyrgyzstan”, which allows for effective
accounting and management of public assets. Uzbekistan has partially separated the responsibilities ofplanning and managing road maintenance and repair investments from the actual implementation ofmaintenance and repair; since 2017 the current road agency (the State Committee for Roads) has
performed mostly the former function while the implementation is performed by newly formed unitaryenterprises under the Committee’s Directorate for Construction and Reconstruction of Public Roads(ADB, 2018).
Recommendations for asset management systems

To move forward, the countries are recommended to:Finalise the design of their asset management system frameworks. Strategic asset management
should have a link to long-term financial planning, as the existence of sustainable funding
sources is a key to maintaining performance. Introducing an asset management approach toroad network management and specifying explicit links to strategic budgets are essential fortransport authorities to be able to arbitrate among needs, vulnerabilities and trade-offs (Crist etal., 2013).



Make sure the framework includes performance measures that help to identify required
outcomes and assign explicit roles and responsibilities. Government bodies responsible for theasset management maintenance, repair and construction should be defined, with separation
between implementation and planning.



Make sure that the data is regularly collected, checked for quality, analysed, shared across theagencies, and used for decision making, both financial and strategic. The asset management
system should cover the following tasks: monitoring of the conditions of assets and theirenvironment; data collection and database development; performance assessment using thedata; calculation of cost and effectiveness of possible actions; use of decision-making tools suchas cost-benefit analysis, life-cycle assessment and multiple criteria analysis; uncertainty and risk
analysis; and estimates of necessary funding, optimisation and prioritisation.

Box 14 presents the findings of an international scan of the asset management practices intransportation, carried out by the United States’ Federal Highway Administration (FHWA).

Box 14. Features of developed highway asset management systems
In 2005 the United States’ Federal Highway Administration (FHWA) carried out an international review ofseveral sites in Australia, New Zealand, Canada, and the United Kingdom to observe the asset

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management practices of the visited highway agencies.
Most of the agencies had top-level agency commitment to asset management. This implies establishing amanagement position or an office for bringing together agency resources and capabilities forundertaking asset management and creating an asset management culture, and for providing guidance
and information for the stakeholders.
High-quality data on infrastructure needs are essential to support decisions in asset management andrequire additional funding. The asset management systems of the visited agencies had in common thefollowing features in data collection and analysis:Application of life-cycle cost analysis, with appropriate data identified and collected for thisanalysis;

Locational referencing systems supporting the asset management database;High-quality data with periodic re-sampling;

Data sharing among the agencies;

Risk assessment applied at different stages of the decision making.

The main challenge was the institutionalisation of the asset management, which changes theorganisational culture. To achieve this, the states adopted new legislation to support the asset
management system introduction, and educated public officials and other stakeholders. In the beginningof these reforms, the countries found it difficult to find qualified candidates. In response, the countries
developed manuals and best-practice procedures, organised training courses, and establishedprofessional associations and user groups.
Other features of the asset management systems of the surveyed countries include incorporation ofasset management principles into agency planning and policy documents and into public–private
partnership agreements. The legislation provides also links to environmental policy and to improvementof quality of life of the local communities.
Source: Federal Highway Administration, FHWA (2007).

Governance and regulation
The dimension of transport governance and regulation measures how well transport infrastructure andnetworks are regulated and operated, with a focus on rail, aviation and road markets. Good governancein transport is critical to sustain the competitiveness of the sector and, in turn, economic growth. Stable
and transparent governance frameworks provide the certainty necessary to attract investment andimplement strategies and visions. Appropriate regulatory intervention ensures that transport markets
operate efficiently and safely. This report focuses on the rail and road markets as these are the maintransport modes for freight in the Central Asian countries.
Figure 42 displays the average score for the governance and regulation dimension and the scores for rail
and road regulations. Kazakhstan is the regional leader in this dimension due to its advanced road and,especially, rail reforms. The following two sub-sections of the report summarise the best practices in rail
and road regulations, explain the reasons for assigning the scores, and recommend possible
improvements.

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Figure 42. Governance and regulation: Sub-dimension average scores and indicator scores
Average score for Governance and regulation Sub-dimension

Rail regulation

Road market regulation

5
4
3
2
1
0
KAZ

KGZ

MNG

TJK

UZB

Rail regulation should aim at gradual market opening and efficiency

This indicator measures the progress made in implementing strategies for rail reforms – mainly rail
policies such as harmonisation of rules and market liberalisation, as this is crucial for creating thepreconditions to establish and join the market. Even if the legislation exists, it is not always well
implemented. Better implementation would ensure that existing technical and regulatory barriers forcross-border rail transport are removed.
Railway transport should become more attractive for shippers with facilitated procedures for shipments,
payments, and border crossings; this is especially relevant for the Central Asian countries which haveshifted from command economies to market ones. The attractiveness for the customers can beincreased through terminal improvements, communications facilitation, increases in operational
efficiency, and harmonisation of service and related procedures across corridors and the countries in theregion.
The countries should consider vertical separation (between the infrastructure and operation services)and horizontal separation (between different services of each type) of the rail industry. This would allow
the train operators and service providers to compete against each other and, therefore, potentially leadto improved efficiency in the sector – which in turn could lower prices and promote innovation. Lower
prices and reduced shipment time can attract more shippers to the railways, both domestic andinternational. However, the effects of the separation are still debatable because the correspondingreforms are quite recent in most countries of the world.
Currently, only Kazakhstan and Mongolia have ongoing railway reforms. Kazakhstan was first among thefive countries in the region to start a railway reform in 1997. Kazakhstan, Kyrgyzstan, Mongolia andUzbekistan have separate strategies developing their railway sectors. All the strategies have in common
the objective of increasing rail transit. The missing elements identified in all the strategies are measuresfor cost reduction and towards sustainable development. While Kazakhstan has already carried out someseparation in its railway sector, none of the remaining countries is currently planning either horizontal orvertical separation.
Kyrgyzstan’s main policy for rail transport development up to 2020 aims at increasing the transit
potential of the national railway. The corresponding measures include the commissioning of new

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wagons, diesel locomotives, infrastructure facilities, and new railways. A high priority is the constructionof the North-South railway connecting the north and south of Kyrgyzstan.
The purpose of the strategy for the development of the national railway operator of Uzbekistan is tocontinue the development of the railway industry as an integral part of the economy of the Republic of
Uzbekistan, to increase the country's transport and transit potential, create new jobs, maintain acoordinated transport and technical regulation policy increasing the level of comfort and reliability of
train movement, increasing the investment attractiveness of railway transport. The planned measures
include modernisation of the existing railway lines and rolling stock, as well as service quality
improvement.
Oversight bodies are assigned in some of the countries (Kazakhstan, Mongolia) but they have limited
functions. In the other countries (Uzbekistan) such bodies are missing or not completely independent.
The Central Asian countries are also members of different customs and railway unions – e.g. the Eurasian
Customs Union, the Organisation for Cooperation between Railways (OSJD), the European Agreement
concerning the Work of Crews of Vehicles Engaged in International Road Transport (AETR). This
sometimes hinders harmonisation and simplification of procedures for the clients.
Railway reforms in Kazakhstan

Kazakhstan started its rail sector reform in 1997 by merging three railway departments (Almaty, West
Kazakhstan, and Tselinia railway administrations) into an integrated national operator, Kazakhstan Temir
Zholy (KTZ). The next step of the reforms was the separation of social services such as schools, hospitals,
farms, and resorts with the aim of improving the efficiency and effectiveness of railway operations at thenational level. The reforms also included internal reorganisations that consolidated operations anddepartmental functions.
The government continued the reforms by issuing a new strategy in 2001, aiming at (i) adaptation of thesector to a market economy while maintaining government control and ownership of the infrastructure
network; (ii) stimulation of competition in rail transport and supporting services to provide railway
services which are more accessible, efficient, safe, and high quality; (iii) creation of an institutional
environment attracting private investment and initiative; and (iv) development of a domestic railway
supply industry.
From 2002 to 2004 the national railway organisation was converted into a joint stock company (NC KTZ
JSC), which in 2006 issued its first Euro Bond financing. Both vertical and horizontal separation of therailway services was initiated. New tariff reforms stimulated privatisation of freight wagons and private
operation of some passenger services. The state separated policy and regulatory functions fromcommercial functions, and assigned passenger and freight activities to separate enterprises (CAREC
Secretariat, 2018).
In March 2018 the NC KTZ JSC gave a briefing on a new “Digital Railway” information technology
development strategy. The strategy addresses freight, passenger, multimodal transportation, logistics
and projects implemented at railway infrastructure facilities, as well as in corporate areas. In freight, theprogram aims at the introduction and operation of information systems in cargo movement in order toincrease efficiency of the transportation processes. This includes the introduction of automated systems
in operational management, integrated route processing, planning and forecasting of train-wagon traffic,
control of consumption of diesel fuel, and electricity by locomotives. The strategy also implies further
expansion of the existing “single electronic window” used in the planning, organisation andimplementation of transportation and electronic payment for services related to freight transportation.

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Box 15. Costs and benefits of separation in the railway industry
By allowing train operators and service providers to compete against each other, separation potentiallyleads to improved efficiency in the sector. This in turn can lower prices and promote innovation. Lower
prices and reduced shipment time can attract more shippers to the railways, both domestic andinternational. However, the effects of the separation are still debatable because the correspondingreforms are quite recent in most countries of the world.
The benefits of the vertical separation are in general higher for industries with (1) higher share ofpotentially competitive elements; (2) great potential for productivity improvements; (3) denser markets;and (4) greater institutional capacity of the industry regulation. While in rail often the competitiveelement is quite small, the economy of density is high, especially in rail freight (Abbot et al., 2017).
Besides the benefits, the vertical separation has its costs that might overweight the benefits. The costs
are associated with development and execution of new legislation and standards, with resolving
conflicts, and maintaining interoperability between different services. The costs are likely to be evenhigher in the case of network capacity constraints and other technical constraints (Drew, 2009). Several
international cases show that vertical separation might create additional costs. To outweigh all these
additional costs, the separation must create enough competition that significant efficiency increases
result from it. Therefore, if before separation a vertically integrated operator is large and inefficient, thepotential gains can be higher than in the case where a vertically integrated operator is already facingstrong competition with other railways or other transport modes. This possibly explains why verticalseparation in European railways brought more efficiency gains than in the United States (Abbot et al.,2017). Additionally, if vertical separation is not conducted along with horizontal separation, the potential
efficiency and productivity benefits can be very limited (Cantos, Pastor & Serrano, 2010).
An analysis of studies on efficiency due to vertical separation carried by Abbot et al. (2017) showed thatin the case of freight rail transport, the benefits of separation can be higher. The extent of the benefits
will depend on the freight task and type of infrastructure. Vertical separation can increase costs on dense
networks and high-frequency bulk freight as these factors require very close and efficient coordination
between operation and maintenance. Especially if the track is used only by large bulk carriers and notused for passenger, container or any other traffic, the vertical separation will likely bring more costs thanbenefits as it will unlikely lead to significant competition but will make the coordination and alignment
processes more complicated. By contrast, separation – in the case of low-density, long-distance freight,
with tracks used for different purposes – can potentially lead to greater efficiency. Currently, however,
the amount of studies proving this is very limited (Mizutani and Uranishi, 2012; Abbot et al., 2017).

Recommendations on rail reform

Summing up for all the five countries, to move forward with the rail reforms the main recommendation
is to make sure that the rail reform:Implies establishing an oversight independent body with defined roles and responsibilities(regardless of countries’ plans on vertical and horizontal separation, it is important thatindependent rail market regulatory authorities are established to oversee the implementationof the railway reforms and strategies); andENHANCING CONNECTIVITY AND FREIGHT IN CENTRAL ASIA © OECD/ITF 2019

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

Includes policy measures towards improved sustainability, safety, access, and quality of service
as well as cost reduction.

In the longer term:

The countries need to make sure that the reforms plan for horizontal and vertical separation inorder to improve efficiency in the sector. Exceptions from this are countries with a small railway
network (Tajikistan and Kyrgyzstan). In the Central Asian countries, the economy of density is
not always high even in freight, and the institutional capacity might be insufficient, which
creates additional challenges for maximising the benefits of vertical separation.

Reforms should suggest measures for better investment planning, improvements in financial
management and involvement of private sector. Because multimodal road-rail solutions are especially
important for the Central Asian countries, the reforms should include development of such solutions.
Regular data collection and making the data public should be incorporated into the railway reforms andput into practice.
Road market regulation should promote common rules in the region

Various policy goals contribute to the integration of road freight into the international transport system,
and are best attained through the promotion of common economic, social and environmental rules.
Market opening being a long-term goal, it is important that regulations focus on the harmonisation ofthese rules. Possible measures include: improved effectiveness of controls, including at borders;harmonisation of employment conditions in the road transport profession; cabotage rules to guarantee
equal market access opportunities and reduce empty runs; introduction and modulation of road user
charges; social and safety legislation; involvement of professional associations; licensing and priceregulations; and simplification of rules and procedures.
Road market regulation in Central Asia

In all the countries, legislation in the area of employment conditions in the road transport profession has
been adopted and implemented. However, the legislation does not always ensure safety, health,fairness, efficiency and social accountability. Similarly, laws guaranteeing the safety of cargo for thefreight shippers and reduction of the grey/ black market in freight forwarding have been adopted but do
not always work efficiently.
In most of the countries, legislation regulating road user charges is in place but has not yet been applied.
In Kazakhstan the first toll road was introduced in 2013, and since then the budget revenues from thetoll have increased and toll roads are now profitable. Uzbekistan plans to introduce toll roads by 2020.
These will be new alternative roads parallel to the existing ones.
Although the countries are currently focused on developing physical infrastructure, some have also
developed indicators to measure the performance of the road network. Tajikistan has developed
indicators in cooperation with private and public organisations during working groups and other types ofmeetings. The indicators allow authorities to assess the operational performance of the existing network;
the evenness of pavements; the degree of compliance of transport and operational indicators with therequirements for consumer properties of roads and identifying the causes of this discrepancy; pavement
roughness and its influence on roads’ operational characteristics; the resistance of pavements (according
to the intensity of use); and the durability of coatings. These indicators apply according to theestablished state standards, and also depending on the season and climatic conditions.

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In most of the countries, cabotage for foreign shippers is prohibited. As Kazakhstan and Kyrgyzstan are in
the Eurasian Economic Union (EAEU), road carriers of these countries can carry out international freighttransportation according to the rules of the Union. International road transport of goods performed bycarriers registered in the territory of one of the EAEU member states does not need authorisation in thefollowing cases: (i) between the member state in whose territory the carriers are registered and anothermember state; (ii) transit through the territories of other member states; (iii) between other member
states. Permits are not required for bilateral, transit and transportation to or from third countries
between member states of the Union (for example: Astana-Moscow, operated by a Kyrgyz carrier).
Member States of the EAEU also implement a program of phased liberalisation from 2016 to 2025 forcarriers registered in one of the member states and performing road transport of goods between points
located in another member state. The program of phased liberalisation of cabotage transportation within
the Union seeks to (i) create a common market for road transport services within the Union and (ii)facilitate access for carriers of the member states to the provision of freight road transport services
throughout the union, regardless of citizenship and state of registration.
Transport control in terms of compliance with weight and dimensional parameters, as well as with thenational legislation of the countries through which the route passes, will be carried out by the internal
stationary and mobile posts of transport control of the EAEU member states. Upon entry and exit to orfrom the territory of the EAEU at transport control points, registration tickets are issued to transportcompanies by the transport control authorities of the EAEU member states for further movement within
the territory of the EAEU. The Program aims to reduce the share and length of empty runs and thetransport costs of consumers of freight road-transport services, increase the efficiency of using vehicles
in international freight traffic, and define common conditions and rules for providing freight roadtransport services within the EAEU.
All of the five countries are members of the TIR Convention, which helps to facilitate haulage. However,the prices of a TIR Carnet permission (a document issued to traverse TIR member countries without
undergoing customs inspection until reaching the destination country) vary across the countries
significantly even within the region (e.g. in 2017, a six-volet TIR Carnet cost USD 81 in Kazakhstan,
USD 180 in Kyrgyzstan and USD 43 in Russia (UNICE, 2018). This variation affects the competition
between the carriers from different countries, and makes it almost impossible for smaller carriers toparticipate in the system. Additionally, the TIR regulations have very vague recommendations on theapplication of the rules for the countries that are members of a customs union, which in the case of
EAEU members requires elaboration of additional agreements to regulate the haulage. The agreements
have not been reached up until now. Moreover, sanctions between Russia and the European countries
affect the Central Asian countries when the cargo has to cross Russia. Finally, the situation withinternational haulage in the region is complicated by the substantial border crossing time between the
countries, which is especially long due to queuing (see Chapter 3).
Another problem in the countries is difficulties of finding legal and practical information for the carriers.
For example, the carriers often are not aware that their own country or a neighbour country has
introduced or cancelled temporary import bans for some goods. Information on border-crossing,insurance, shipment, and other rules is scattered across different web resources.
Some issues are more specific to smaller countries in the region that have weak road market regulations,
resulting in competition with unlicensed operators. As a result, freight carriers from countries such as
Kyrgyzstan have only one or two vehicles per company and face challenges in competing against larger
companies in the international road market. The small size of the carriers and low professional standards
also leads to black market schemes when shipments are agreed between the shipper and the carrier via

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messengers. This implies tax evasion and no guarantee for cargo safety. Furthermore, the small size ofthe companies impedes fleet upgrades, which, in turn, has a negative impact on environment
performance and on the working conditions of the drivers.
In all five countries, the domestic road market has no regulation that distinguishes between commercial
and own-account (of one’s own merchandise) trucking. Such a distinction could bring more efficiency
through specialisation and, therefore, enhance competition and sector development (Rastogi and Arvis,2014).
Most of the countries collect statistical data related to road market such as: (i) data on the structure of
the market (the number of companies in the freight market and their size, the number of employees inthe sector, the average weight of goods transported and the distance per unit of time, etc.); (ii) freightflows between different cities, regions and countries (in money and weight units); and (iii) safety andenforcement actions (number of traffic accidents, etc.). At the same time, in most of the countries theefficiency of the road market regulation is not evaluated and an impact assessment is not conducted.
Recommendations on road market regulations

To move forward, the countries are recommended to:Make sure that the road market regulations guarantee safety of cargo and a reduction of thegrey/ black market, and ensure employment conditions related to safety, health, efficiency,social justice and social responsibility in the road transport profession; andCollect detailed statistics and make these publicly available.

On the longer term, the countries should make sure that:

The regulation brings efficient and fast cross-border control, introduction and management ofroad user charges, cabotage market, and minimisation of empty runs. The path of the roadmarket opening and integration can be started from the harmonisation of the terms ofcompetition both between road hauliers from different countries and between modes oftransport.



The countries should move towards developing and adopting professional standards for domestic
drivers, consistent with international standards. Commercial and own-account transportation
should be separated on a legal basis and supported by governments with information andtechnical assistance.

The countries in which the carriers are very small and weakly regulated should encourage company
consolidation and install a proper licensing system. The countries also should develop and apply
measures to reduce tax evasion, such as facilitation of the tax payment procedures, increasing control,
providing subsidies and tax discounts for the carriers operating legally and for the shippers using theservices of the legal carriers, etc.
Digital technologies can increase the efficiency of the policy measures. For example, portals containing
information for road market participants can help them to obtain legal, tariff, and other related
information, increasing their efficiency. This can attract newcomers to the market and increase
competition. Portals showing the performance of the border crossing points online in real time can help
the carriers plan their routes and the government to monitor customs performance. Box 16 shows anexample of such service on the website of the United States Customs and Border Protection Agency.

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Box 16. Border wait times displayed online in real time
The website of the United States Customs and Border Protection Agency contains information on theborder crossing points at the Mexican and Canadian borders. This includes the name of the bordercrossing point, the number of lanes, current delays, wait time collection method, and opening hours.
Real-time information display

A symbol displayed below a border crossing indicates the type of methodology used for wait-time
estimation.
The Bluetooth orange symbol indicates wait-time measures for the crossing are being calculated using
Bluetooth®-based technology. Bluetooth® readers capture wireless signals emitted from a traveller’sBluetooth® device (e.g. mobile phone, tablet, laptop) as the vehicle approaches the border. The
Bluetooth® signals are then used to determine an estimated wait time.
The green RFID symbol indicates that commercial wait-time measures for the crossing are being
calculated using Radio Frequency Identification (RFID) technology. RFID measures travel times between
RFID readers installed at major points of the commercial border crossing process by detecting thevehicle’s transponder number. As the vehicle passes under the RFID reader a time stamp is created
which is used to determine an estimated wait time. NOTE – All other crossings use a manual wait timecollection method such as line of sight and/or driver surveys.
Source: https://bwt.cbp.gov/index.html (last accessed 19.10.2018)

Cooperation between the countries in road market regulation

Cooperation between countries in road market regulation is very important for road freight liberalisationand connectivity improvement. Forms of cooperation can vary from gradual liberalisation to open
market.
The gradual liberalisation can be started by joining various international transport systems such as theTransports Internationaux Routiers (TIR) Convention and quota systems such as the European
Conference of Ministers of Transport (ECMT, which evolved into the ITF in 2006), or even by establishinga regional quota system.

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The TIR Convention is a multilateral treaty that establishes an international customs transit system. It
facilitates cargo movements by reducing border crossing times while providing customs authorities withsecurity and guarantees.
The ITF Multilateral Quota is a system of transport licenses that enable hauliers to undertake anunlimited number of multilateral freight operations in the member countries participating in the system.
The Multilateral Quota is managed by ITF’s Road Transport Group (RTG), which allocates licenses to themember countries of the system and publishes a User Guide. The Quota introduces standards regarding
noise and emissions; promotes the use of environmentally friendly and safe vehicles; and establishes
qualification standards for companies, managers and drivers.
Examples of open markets are the European Union (EU), the Eurasian Economic Union and the Eurasian
Customs Union. The goal of EU policy is to create a European Single Transport Area where road hauliers
from different Member States are free to access the transport profession in different countries and toundertake transport operations across the EU. The strategy relies on (i) a well-functioning internalmarket, (ii) fair competition and workers’ rights, (iii) decarbonisation, and (iv) digitalisation.
Each of these options brings risks and challenges for the countries, and each would require a certain
level of regional integration and cooperation on a political level, especially for a complete market
opening. For example, the intended establishment of the internal road transport market in the EU is still
not fully completed. Varying implementation of the current rules by Member States (due to theadditional national requirements that are not always in line with EU regulations) impedes the integration.
The Member States with a relatively high number of cabotage operations (and therefore a protectionist
nature) are the ones whose national regulations diverge most from the EU ones. Another issue is thattransport companies set up so-called ‘letterbox’ companies in lower-wage EU countries without
operating there with the intention of minimising the costs.

Sustainability
The dimension on transport sustainability measures progress towards resource efficiency, environmental
protection, reduction of health impacts and increased transport safety. Road transport in Central Asia is
growing while the share of inland rail transport is relatively low and is even slightly decreasing, as
Chapter 3 shows. While initially increasing road transport allows considerable productivity gains, in thelong run the negative externalities – for example in terms of local pollution, noise or CO2 emissions – arehigh. Electrified railway transport is a mode characterised by lowest emissions and, therefore, increasing
railway share improves environmental sustainability. Transport safety also belongs in this sub-dimension
as transport infrastructure can only be sustainable if it reduces negative health impacts. The subdimension also includes logistics, as well-functioning logistics both domestically and internationally is anecessary precondition of national competitiveness and improves the efficiency of the freight sector.
Figure 43 displays the average score for the sustainability dimension and the scores for road safety andenvironmental sustainability and logistics strategies. Kazakhstan is the leader in this dimension due to its
advanced road and, especially, rail reforms. The following two sub-sections of the report summarise thebest practices in rail and road regulations enhancing sustainability, explain the reasons for assigning thescores, and recommend possible improvements

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Figure 43. Sustainability: Sub-dimension average scores and indicator scores
Average score for Sustainability Sub-dimension

Road safety and sustainability strategies

Logistics strategy

5
4
3
2
1
0
KAZ

KGZ

MNG

TJK

UZB

Road safety and environmental sustainability strategies should be developed andadoptedRoad safety should be a priority of transport policy, including a harmonisation of road safety technology,
improved road worthiness tests, a comprehensive strategy of action on road injuries and emergency
services, promotion of the use of safety equipment, etc. Another key strategy is a sustainable strategy
that aims to develop and introduce measures to reduce energy consumption in transport services;
including introducing natural gas in commercial road and waterborne transport and increasing the shareof electrified rail transport. Other potential measures include shipping larger volumes of freight or
people jointly to their destination and using individual transport only for the last kilometres. Morespecifically, the environment strategy may address the following issues: modal shift from road to othermodes of transport; standards for energy efficiency; vehicle labelling for emissions and fuel efficiency;
the introduction of carbon footprint calculators; co-modality in transport; eco-driving and speed limits;standards for noise emission; the reduction of greenhouse gas emissions; and the use of ITS applications.
The indicator presented in this sub-section measures whether or not countries have in place acomprehensive strategy for road safety and a strategy for greening transport activities andinfrastructure, and the quality and implementation of these strategies.
In all five countries, a dedicated road safety strategy is currently under development. There is also a
regional road safety strategy for 2017-30 prepared by the Asian Development Bank for the CAREC
countries. The strategy aims to provide a framework for the member countries to effectively implement
CAREC’s commitment to road safety. The strategy’s vision is to “make CAREC international road corridors
safe, efficient, and attractive for all road users.” The strategy aims to reduce the number of fatalities on
CAREC road corridors by 50% by 2030, compared to 2010, to save 23 000 lives annually, and to prevent
250 000 serious injuries, with the estimated economic savings totalling approximately USD 16 billion peryear (CAREC, 2018). The World Bank also supports a few projects related to road safety in the region.
The year 2018 was announced as the year of traffic safety by the Minister of Roads and Transportation ofMongolia. A road safety committee has been established, eight international standards implemented and
26 regulations introduced. Following international standards, Kazakhstan has increased fines for breaking
the road safety rules.

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A dedicated sustainability strategy is currently approved only in Mongolia (Mongolia Sustainable
Development Vision 2030). In the Kyrgyzstan the previous national strategy of sustainable development
had a planning horizon until 2017 and the new strategy for up until 2040 is currently under development.
In other countries the sustainability strategy is either under development or is a part of a broader state
strategy.
There is the Sustainable Development Strategy of Central Asia, which has been developed by the United
Nation’s Environment Program (UNEP) and covers Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan andUzbekistan. The strategy presents directions and general approaches for establishing favourable
legislative, institutional, economical, informational and other conditions for achieving sustainable
development goals in the region. The strategy suggests long-term objectives for the three dimensions ofsustainability (economic, social and environmental), creation of mechanisms for energy security,
conservation of natural and cultural heritage and promotion of effective management. The plans related
to transport include reduction of operative expenses and providing support for transit, andestablishment of an effective transport infrastructure. Improvements of infrastructure are to be achieved
through attracting of financial resources for maintenance, repair and development of existing transport
networks and communications systems, improvement of legislation and regulation practices in thetransport sector, including attracting private sector funding (UNEP, 2009).
Most of the sustainability strategies consider a modal shift from road to other modes of transport anddevelopment of co-modality solutions. Some strategies include standards for noise emissions and targets
to reduce greenhouse gas emissions. None of the countries, at least to date and to the authors’knowledge, cover in their programmes standards for energy efficiency or introduction of carbon
footprint calculators.
Data on road safety accidents and other indicators are collected in all countries, though some of thecountries started such data collection only recently. Data related to the sustainability indicators areeither not collected or are collected irregularly, and, if collected, not always publicly available.
Recommendations on road safety

To move forward, Central Asian countries are recommended to:122

Enforce the collection and regular update of data on road safety and environmental
sustainability indicators. Data are essential to design a policy to improve road safety. It is
recommended that road safety data is collected at three levels. The first level is the final
outcome data, including the number of persons killed and injured, broken down by type of road
users, location and time. The second level is data on road safety performance indicators (SPIs),
focusing on the safety performance of vehicles, road infrastructure and post-crash care androad user behaviours. A minimum set of SPIs includes speed; seatbelt wearing and use of child
restraint systems; helmet wearing by users of powered two-wheelers; and drinking and driving.
The third level is contextual data, including risk exposure data such as: population,
motorisation, traffic volume by type of road users and road types, and personal mobility bymeans of transport, as well as background cultural information (ITF, 2018c).

Make sure that the road safety and the environmental sustainability strategies are developed
and approved by the government or parliament. The countries should also ensure thatlegislation, education and construction efforts towards greater road safety and sustainability
are joined together. This could include developing targeted safety standards and an action plan
for reaching them.

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In the longer term, countries should make sure that data are made publicly available and that thecountries participate in international collaboration to benefit from international good practices. Besides
co-modality, standards for noise, emissions, and targets to reduce greenhouse gas emissions, countries
may consider including standards for energy efficiency and introduction of carbon footprint calculators intheir programs.
Logistics strategies should promote regional cooperation and account for new
technologies

Well-functioning logistics both domestically and internationally is a precondition of national
competitiveness. The ADB surveyed a sample of medium-sized and large firms in Kazakhstan to estimate
the impact of efficiency gains in the transport and logistics sector on firm-level productivity growth. The
results showed that a 10% increase in the efficiency of transport infrastructure generates an increase in
firm-level productivity of 0.9% on average (ADB, 2018a).
The indicator of this sub-section measures whether the Central Asian countries have a strategy or action
plan or initiative in place on how, when and where to improve and support the development ofintegrated logistics investment strategies that promote a corridor approach and efficient intermodal
solutions.
National logistics strategies do not yet exist in any of the Central Asian countries. These are underdevelopment or are parts of other more general strategies.
In Kazakhstan, the State Program for the Development and Integration of the Infrastructure of theTransport System contains objectives related to development of the logistics sector. Those include
optimisation of export, import and transit operations; improving the efficiency of logistics; creation of aninternal and external terminal network; ensuring a unified system of legal regulation of transit cargo on
the country’s territory; and institutional reform of the transport and logistics industry. A morecomprehensive logistics strategy and development road map has been suggested by Samruk Kazyna but
has not yet been adopted. The road map includes sections on communication and cooperation withgovernmental bodies of Kazakhstan; improvement of infrastructure; automation of processes andimplementation of new projects and standards in logistics; development of additional services, including
financial and insurance services and applications with information for shippers and carriers; and capacity
building.
Mongolia has a logistics strategy project developed by the Asian Development Bank. In Kyrgyzstan thestrategy is a part of a new road transport codex, which is also under development. Similarly, in Tajikistan
there is a codex of road transport under development, which has a chapter devoted to logistics.
Recommendations on logistics strategy

To advance in logistics strategy development the countries are recommended to:Adopt a logistics strategy, either as a standalone or as a part of a bigger strategy. The strategy,
similarly to any policy framework, should contain measurable objectives and a set of actions toachieve the objectives, define roles and responsibilities, and specify budgets.

Make sure that the strategy suggests measures to improve customer service and to reduce theservice cost. The corresponding objectives could be to develop co-modal solutions and identify
corridors, to decrease transportation costs, to facilitate border crossing, to improve the qualityof trade-related infrastructure, to increase the competence and quality of logistics services andtimeliness of shipments, etc.

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Collect corresponding data to be able to measure progress. To enhance regional cooperation inlogistics, the governments should support the emergence of open standards for data sharing,
the establishment of common platforms for information sharing and collaboration, and single
entry points for administrative services (Single Windows). The governments also should ensureinteroperability between public and private systems for the exchange of logistics informationand enable faster cross-border interactions.



Incorporate into the strategy plans to develop and improve skills and qualifications in the logistics
sector and to align them with international standards. This include plans to improve theeducation system for the industry, learning from international experience and standards,
introducing professional accreditation, attracting foreign teachers and managers to fill in current
gaps in expertise.

In the longer term,

124Consider establishing a national or/and regional ’logistics observatory’ for data collection,
processing and sharing. Different types of logistics observatories exist around the world today
performing a variety of functions, from monitoring logistics performance and building reliableindicators to platforms for knowledge dissemination and supporting training and research inlogistics. In terms of their governance and responsibilities, some countries have multiple
observatories focusing on specific sub-sectors, some housed by government, others by industry.
Examples of recent observatories include Chile and Mexico, where freight data collected at theurban, regional, provincial, and international levels are stored within the same repository to be
used by the freight modellers and planners to support decision-making (see ITF, 2016a (Chile);
ITF, 2016b (Mexico)), as well as Box 17).

Promote open standards and open platforms for the involved stakeholders. Including road maps
to apply innovations could be another step in advancing the logistics strategy.

The national logistics strategies should take into account emerging innovative trends such as
mass-individualisation of products and services, digitalisation and automation of vehicles andprocesses. These innovations will bring to logistics new opportunities and challenges.
Automation will reduce the labour input to logistics processes, while wide application of
information systems and digitalisation will lead to creation of a ‘sense-and-respond’ logistics
system with significant gains result from reduced capital stocks through smart contracts. The
transition to the new logistics systems will be impeded by non-technical barriers that include
need for re-design of business models and changes in relations among stakeholders (ITF, 2018b).
Digitalisation and implementation of cutting-edge technologies can potentially concentrate
market power and constrain the users to a limited number of solutions. Therefore, governments
should monitor such solutions and stimulate competition by, for example, supporting open
standards and open platforms. Governments also should set cyber security standards forlogistics organisations and raise awareness to ensure the resilience of the logistics and supplychain systems to cyber-attacks.

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Box 17. Examples of different types of logistics observatories
In the Netherlands, the government established in 2009 the non-profit Dutch Institute for Advanced
Logistics, or Dinalog (http://www.dinalog.nl/en/about_us/). This is a public-private partnership with afocus on training and collaborative projects between businesses, government, universities and otherinstitutions for innovation in logistics. It is supported by EUR 12 million in grant funding yearly from thegovernment and co-financed to the same amount by industry and knowledge institutions. Its goals are:


To be the premier European institute for applied research and executive post-experienceeducation in logistics and supply chain management;To act as a catalyst for the retention and attraction of innovative business activities in the area ofsupply chain control, concentrated on the Supply Chain Campus Breda;

To develop scientific knowledge on advanced logistics with worldwide acknowledgement, in boththe academic and business community;

To create an environment that attracts world-class researchers and where innovative companies
base their key professionals to work on improving supply chain and logistics management;

To provide interaction with world-class international researchers;

To develop, organise and create markets for post-experience education in supply chain
management and logistics, closely cooperating with its partner network.

Dinalog’s work on the scientific advancement of logistics is acknowledged by international academic andbusiness communities. It has created an environment that attracts world-class international researchers
and innovative companies to work on improving supply-chain and logistics management.
France has multiple observatories focusing on specific sub-sectors:


The National Road Freight Transport Economics Observatory, focusing on information on costs,
prices and taxes in the sector (http://www.cnr.fr/);Regional transport and logistics observatories, for example for Alsace, covering transport and/or
logistics sectors in many of France’s regions (http://www.ortal.eu/);

The French-Italian transport observatory, focusing on cross-border transport and developmentof infrastructure between the two countries (http://osservatoriotrasporti.eu/fr/observatoiredestransports-franco-italien/); andThe Observatory of Transport Policy and Strategy in Europe, housed in the Ministry of Transport,
covering all modes and both freight and passenger transport, with the mission to set analysis oftransport systems and policies in an international, and in particular a European Union,
framework (http://www.developpement-durable.gouv.fr/Presentation-de-l-OPSTE.html).

While the United States does not have a specific logistics observatory, the US Department ofTransportation’s Bureau of Transportation Statistics and Federal Highway Administration cooperate toproduce an annual report called Freight Facts and Figures. Underpinned by the statistical resources andexpertise of the two agencies, this provides a comprehensive set of data on the physical characteristicsof the national freight transport system and the freight moved, with selected indicators of congestion,
environmental impacts, performance in relation to safety and contribution of the sector to the economy.

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Towards better planning and governance: recommendations acrossthe three dimensions
Institutional capacity is at the core of the region’s efforts to improve connectivity. In recent years theCentral Asian countries have shown significant progress at all levels of transport planning, governanceand regulation, and sustainability (Figure 44). They have developed and adopted strategies and policy
frameworks along the three dimensions of the ITF qualitative policy assessment framework (planning,governance and regulation, sustainability).
Figure 44. Scores for the three dimensions of transport planning and regulation
Average score for Transport Dimension

Planning

Governance and regulation

Sustainability

5
4
3
2
1
0
KAZ

KGZ

MNG

TJK

UZB

Source: ITF

Kazakhstan performs especially well in the regulation dimension due to its advanced railway sector
reforms and the introduction of road user charges and corresponding regulations. Uzbekistan has
expended significant efforts in fighting corruption and increasing transparency, especially in project
selection and public procurement (according to the Fourth Round of Monitoring of the Istanbul AntiCorruption Action Plan for Uzbekistan (OECD, 2018b), the country has significantly progressed in termsof political will to fight corruption and anti-corruption policy, anti-corruption education and awarenessraising, public participation, investigation and criminal prosecution of corruption, administrative
procedures and state financial control and audit). Mongolia has developed statistical data collection andis the first country in the region to introduce an asset management system. Kyrgyzstan and Tajikistan
have made significant advances in planning, developing and adopting transport strategies and related
policies and legislation aimed at improved efficiency, regional co-operation, safety and sustainability.
Besides the national strategies, international development partners such as Asian Development Bank via
CAREC, the World Bank, and the United Nations (UN) support countries in developing regional strategies
to improve road safety, logistics, sustainability, railway regulations and asset management, among
others.
There is also room for improvement. Frameworks and strategies often miss measurable objectives orbudgets. Performance assessments are carried out irregularly and with no clear feedback to the revisionof the strategy. Impact assessments are rare, while strategies may have gaps between years.

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Further, the countries rely little on quantitative models in planning, project selection, and asset
management. Data are collected in different formats and are often not publicly available. Most of thecountries apply cost-effectiveness analyses, but cost-benefit analysis (CBA) and multiple criteria analysis(MCA) are rarely used. Some countries develop scenarios and take them into account in their strategicplanning. However, the consistent implementation of risk and uncertainty analysis frameworks acrossdifferent dimensions of planning and governance or across different projects is currently missing.
The countries have shown progress with respect to digitalisation and the application of new technologies
to increase the efficiency of the transport sector. At the same time, some traditional dimensions – suchas reducing corruption and tax evasion, increasing transparency, supplying relevant legal information to
the market – are often overlooked.
This section provides general recommendations relevant to all three dimensions of transport planningand governance.
Focus on institutionalising best practices in transport planning and governance

To improve on existing strategies, the Central Asian countries should ensure that each framework
includes measurable objectives, action plans, roles and responsibilities, and detailed budgets. Eachframework or strategy should imply regular monitoring of its performance and a regular revision basedon an impact assessment. Finally, these strategies or frameworks should provide action plans pertaining
to different time horizons, with more strategic planning in the long run and more concrete planning inthe short run.
The countries receive substantial assistance from international institutions and development partners inundertaking planning and governance activities. Although this support is crucial, it is also costly. In theinterest of financial sustainability, the countries should therefore develop their own institutional capacity
in order to assess and prioritise projects that pursue their national goals.
Incorporating capacity building and the institutionalisation of best practices into national organisational
cultures is challenging, especially at initial stages, due to insufficient human capital. To overcome thechallenge of finding qualified candidates, authorities could organise training courses, develop manuals
and best-practice procedures and establish professional associations. Establishing information portals forthe stakeholders can help to accelerate capacity building. States can work in close collaboration withresearch institutions and learn from the international experience when designing new legislation andpolicies.
Countries could first aim to improve the basic aspects of planning and governance, without which the
adoption of advanced and sophisticated practices might bring more costs than actual benefits. The use ofmodern technologies and automation can help improve the quality and efficiency of planning andgovernance by reducing bias and providing more transparency to the public and all stakeholders
involved. The automatic measurement of border crossing times, and displaying this information in realtime on a dedicated web-page, is an example of such an improvement.
Support decision-making with quantitative and qualitative tools and models

A lack of data prevents effective planning in Central Asia. To support more informed decision-making,countries should introduce standards for data collection and ensure continued data collection, updates
and sharing between relevant actors. Logistics observatories established at national and regional levels
can serve as data collection and processing centres. Their key activities could include data collection,
analysis, dissemination and benchmarking for policy support. This will foster confidence in the data and
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produced analysis and promote dialogue among stakeholders. In the longer term, observatories could
broaden their activities to include information pooling and synthesis, publication of flagship reports,
research and the organisation of public events
Quantitative models should be used for forecasting traffic. The forecasts generated by these models
should be taken into account in transport planning, project selection, asset management and other subdimensions of planning and regulation. Countries should enhance their collaboration with research
institutes and support them in building their own capacity and learning from international best practices.
Cost-benefit analysis (CBA) and multiple-criteria analysis (MCA) should be widely applied to support
more informed decision-making. These tools bring structure, rationality, and transparency to the project
selection and prioritisation process and, therefore, to strategic policy choices. In order to maximise its
potential value, CBA and MCA should include external costs (e.g. local pollution, congestion, road safety)
and, in the case of very large projects, wider economic benefits such as agglomeration impacts. In thecase of large transportation projects, analyses should be complemented by an assessment of the natureand magnitude of expected economic impacts.
Strategies and other planning frameworks should also account for risks and uncertainties. This includes
the identification, assessment and treatment of risks and uncertainties. Building and testing plausible
scenarios should help to design more robust policies and to prepare for the uncertain future and growth.
To reduce the risk of policies and regulations not being accepted by public and concerned stakeholders,the opinions of those should be collected and taken into account while developing the strategies. The
ability to adapt to uncertainties is enabled by flexible planning procedures within long-term strategicplanning frameworks. In addition, it is critical for Central Asian countries to integrate the concepts ofresilience and vulnerability into their planning processes. Transport assets that systematically integrate
such considerations can reduce potential uncertainties around supply shocks and the temporary
unavailability of infrastructure.
Stimulate co-operation among national bodies and involve the private sector andgeneral public

Insufficient co-operation and coordination between various authorities, as well as between the public
and private sectors at the national level, is also an issue. There is evidence of a lack of trust and reticenceto share information. Road and railway agencies do not work closely together, and no administrative
body in charge of multimodal transport planning exists. The lack of common frameworks for project
selection and implementation means that the strategies of different sectors are not always aligned witheach other and with national objectives.
Countries are developing co-operation between the public and private sector through public-private
partnerships (PPP), joint capacity building, and working groups on regulation and planning. For example,
Kazakhstan used the PPP format to build a network of traffic cameras in Astana. In Mongolia, theErdenet–Ovoot railway project was started in 2015 with a build-operate-transfer PPP concessionagreement. In Kyrgyzstan a law regarding PPP was adopted a few years ago, although it has yet to be
applied in the transport sector. All five countries organise working groups, with stakeholders including
the private sector, when discussing new policy frameworks and strategies. However, representatives ofthe logistics sector, shippers and forwarders are often missing in such meetings.
Establishing common frameworks across different agencies within the transport sector and outside of it
can optimise the policy-making process and make it more transparent. For example, Uzbekistan has
advanced significantly in developing common (across different sectors) frameworks for project selection,

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implementation and public procurement by establishing the National Project Management Agency under
the President. The mission of this public institution is to boost the efficiency and secure transparency ofnational and regional programs as well as investment projects throughout the country. The othercountries of the region are recommended to consider establishing a similar body or, at least, developing
and adopting a common framework for project selection and implementation across different sectors.
Governments should explore benefits and make use of public-private partnerships when they makeeconomic sense. The main advantage of PPP over traditional procurement procedures is cost efficiency.
However, PPPs are successful only if there is a constant pressure for efficiency. Therefore, governments
should make sure that private companies engaged in PPPs will be subject to sufficient competition
throughout the entire project lifespan. Central Asian countries should consider adopting theInternational Public Sector Accounting Standards (IPSAS 32) to maximise the value for money of private
investments. Strategic alliances could serve to further stimulate innovations in the efficiency ofinfrastructure projects.

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5. Key recommendations
Most of the recommendations presented in the previous chapters can be applied to all or most of thefive focus countries. However, the countries are different in terms of their economic capacity, landscape,geography, history, and other characteristics. Kazakhstan is currently the regional leader with respect toeconomic and technological development. Rich in natural resources, it has a vast territory and a
relatively small population with sporadic settlements. Uzbekistan is a state with high density of
population, steadily growing. The country is opening up, with major reforms being undertaken in all
sectors, including transport. Tajikistan and Kyrgyzstan have suffered from civil war (Tajikistan) andpolitical unrest (Kyrgyzstan) and have challenging landscapes with mountainous terrain. Mongolia has alarge territory with the least dense population, with almost half of it living in the capital; the country wasstrongly connected with the former Soviet Union, yet, unlike the others, it does not share a common
history in terms of being part of the same country and of having an integrated transport network.
These geographical and historical distinctions have strongly influenced the existing transport
infrastructure and countries’ ability to develop it, financing capacity for rehabilitation and maintenance,
and ability to attract and effectively use investments. Therefore, in addition to general recommendations
that apply to all countries, this chapter also provides country-specific recommendations. The chapter
also summarizes recommendations for the countries on regional and international cooperation; as suchcooperation is essential for maximising the benefits of infrastructure development and soft policy
measures.

Strengthening international and regional co-operation to enhanceconnectivity
The Central Asian countries have been strengthening their international co-operation at different levels
over recent years. All except Uzbekistan are members of the World Trade Organisation (WTO), andUzbekistan is an observer and intends to join it. The countries are also members of transport- andcustoms-related international organisations and agreements such as the International Road Transport
Union (IRU) and its TIR-Cornet systems for road transport, the Organization for Co-operation of Railways(OSJD), the Eurasian Customs Union (Kazakhstan and Kyrgyzstan), the European Agreement concerning
the Work of Crews of Vehicles Engaged in International Road Transport (AETR), and the ITF (Kazakhstan).
Further, countries are members of development programs such as CAREC and internationalorganisations including the UN and the Organization for Security and Co-operation in Europe (OSCE). All
countries except Mongolia are members of the Organisation of Islamic Co-operation (OIC), theCommonwealth of Independent States (CIS) and the Shanghai Co-operation Organisation (SCO), where
Mongolia is an observer. Finally, Kazakhstan and Kyrgyzstan are members of the Eurasian Economic
Union (EAEU), which implies special agreements regarding trade, transport and border crossing.
Despite progress in regional and international co-operation, barriers and challenges remain at different
levels: among trade partners and on the global level, among countries in the region, among the public
and private sector, and among governmental bodies within each country.
Partly due to lack of co-operation within the region, the share of intra-regional trade is only around 5% of
total trade. Typical of the co-operation and harmonisation problems in the region is that countries have

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not only different standards for the maximum weight and axle loads of heavy goods vehicles, but also
different formal procedures and rules for entering and crossing the country. The situation is complicatedby the substantial border crossing time, which is especially long due to queuing. Some borders still do
not have official demarcation (e.g. between Kyrgyzstan and Tajikistan). Currently, transit by road throughthe territory of Kyrgyzstan is prohibited for Tajik vehicles. Additionally, lack of timely and easily accessible
information for shippers, hauliers, and government representatives on changes in shipment regulations,tariffs and temporary bans for certain commodities makes the regional actors vulnerable to market
fluctuations and less competitive at the international level.
Improving connectivity only inside the region is not sufficient. Because Central Asian countries are on theroute between China and Europe, and between Russia and the South, issues along the entire route cannegatively impact connectivity across the entire region. Issues include the imbalance between the cargovolumes transported in each direction, bottlenecks in infrastructure and at border-crossing points,
technical problems, and administrative and legal barriers created by differences in countries’ legal
systems and insufficient co-operation. Europe ships by road and rail to China almost two times less thancomes in the opposite direction (ITF International Freight Model). Currently the Belarus-Poland bordercrossing point is the narrowest bottleneck on the China-Europe railway routes, with the Polish side being
unable to process sufficient number of trains per day due to infrastructure and fleet constraints (Lobyrev
et al., 2018). While Poland and the European Union are currently investing into the expansion of theborder crossing point, with the constantly growing traffic full elimination of the bottleneck might bechallenging. Technical barriers such as different railway gauges across the countries and differences in
the maximum allowed length of trains (whereby the maximum allowed train length in China, Central
Asia, Russia and Belarus is longer than in the EU) serve to reduce railway connectivity as it delays
movements of the trains.
On the international level, a lack of harmonisation of standards and legislation, the insufficient
enforcement of some agreements by national authorities, political and economic sanctions between
countries, and political instability in some neighbour countries (such as Afghanistan) are challenges
which impede the development of trade and connectivity and contribute to future uncertainty.
While the countries are members of numerous international agreements and unions related totransport, not all the agreements are implemented and enforced. Some of the agreements obsolete andothers bring confusion when applied together. There is no strong mechanism for overseeing theimplementation of the conditions and requirements of international agreements and conventions,
except for the TIR Convention.
Governments should continue to harmonise freight-related standards (e.g. maximum weight and axle
loads for heavy vehicles, train length) and related legislation. Common standards should also apply todata collection and sharing as well as to administrative procedures related to road and rail haulage.
Countries should also consider sharing long-term railway and road traffic forecasts for corridors in orderto improve the assessment of policy needs for better connectivity.
The countries should continue developing regional agreements aimed at formalising the regional rail,
road and dry ports networks as parts of an integrated network. Countries should also ensure theenforcement of international agreements at the national level. International agreements may not be
specific enough to enable their enforcement and direct application at the country level. When this is thecase, governments should develop legislation or regulations to clarify the rights and obligations ofdifferent actors with respect to the implementation of international agreements. Executive bodies
should also receive detailed directives allowing them to enforce the agreement. Finally, the countries
should consider establishing oversight bodies and adopting corresponding mechanisms to ensure

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KEY RECOMMENDATIONSintergovernmental supervision of the implementation and application of the agreements and related
guarantees. In order to ensure transparency for the participating countries and public, adoption of amechanism of reporting to an intergovernmental oversight body should be considered.
In the cases of cabotage and transit, sometimes it may be difficult for a country to apply agreements andto control their enforcement due to contradicting bilateral agreements. Efforts should be made to either
bring the bilateral agreements in compliance with each other, or to sign multilateral agreements.
Outdated agreements should also be updated and re-ratified if the countries continue to have aninterest in enforcing them.
Kyrgyzstan and Tajikistan should consider working on bilateral agreements to agree the borderdemarcation, as well as cabotage and transit rules and standards.

Key recommendations for Tajikistan
There is a need for greater strategic prioritisation of infrastructure funds
Supporting facts

Tajikistan has significantly increased the amount of funding dedicated to transport infrastructure and has
set ambitious investment targets for the 2016-2030 period. There may, however, be a need for greater
strategic prioritisation of these funds.
The financial effort required to fulfil this infrastructure plan might be unsustainable. In its State task
program of the Republic of Tajikistan transport complex development until 2025 (the country’s transport
masterplan), Tajikistan’s Ministry of Transport is considering an investment program of over USD 9 billion
over a 15-year period, including road, railways and airport infrastructure investments. This amounts tomore than 15% of the country’s annual GDP and greatly exceeds the current level of spending (2%), as
well as spending levels observed in similar countries (averaging 2.5% in the developing world).
Furthermore, the transport strategy does not provide any ranking or assessment that could be used toprioritize projects. The contribution of infrastructure projects to key transport policy goals, their value formoney (measured in terms of the net present value of a project’s benefits and costs), as well as theiralignment with other strategic documents, such as the National Development Strategy, are not explicitly
assessed. It is therefore difficult to evaluate how well infrastructure projects will serve the country’s
current and future economic needs. Perhaps as a result of this, the global portfolio of national projects
seems to be unbalanced. For instance, over 60% of total investment is devoted to railways, despite thefact that road traffic is growing at a rapid pace and the modal share of rail is falling. The number of truckkilometres travelled in the country has been increasing by 6% per year over the last decade. The modal
share of rail has fallen from 30% in 2006 to 6% in 2016. Given that diversifying the economy is high on
the Tajik political agenda, the demand for road freight transport is likely to grow further in the coming
years.
Despite ambitious investment plans, maintenance budgets remain low. Although the road conditions in
the country would necessitate greater-than-average spending on road maintenance, foreseeable roadmaintenance spending is in fact significantly lower than international levels. While middle-income
countries spend on average 0.75% of their GDP per year on road maintenance, Tajikistan spends lessthan 0.5%. There is also a significant backlog of maintenance on the road network. The AsianDevelopment Bank (ADB, 2011) estimated that 80% of the roads in Tajikistan are in very bad condition,with much of the road network beyond repair. Insufficient maintenance has proved especially costly for

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KEY RECOMMENDATIONSTajik government. About USD 1 billion worth of road assets were lost between 1990 and 2010.
Insufficient maintenance has also been costly for the Tajik economy. Over 50% of the road network is
rated at an average international roughness index (IRI) of over 7 m per km, which results in lower travel
speeds, increased fuel consumption, and higher vehicle operating costs.
Possible measures to implement

Update the transport masterplan by:Using robust analytical tools, such as computerized transport models built on reliable data, toidentify capacity improvement needs;

Establishing a prioritized pipeline for project preparation based on technical and economic
criteria rather than political agendas;

Reconsidering the balance between investment and maintenance spending.

These measures could be accomplished through the use of an advanced project selection methodology.
This methodology should take into account a project’s likely impact on domestic and international traffic,
the benefits it will bring to different regions and companies, and how costs and benefits will be
distributed among relevant stakeholders. The selection procedure would ideally include data collection,
the use of a mathematical model representing transport demand and supply, and cost-benefit analysis.
Create a road fund.
There is a need for stable funding flows dedicated to road maintenance that advocate for the creation ofa road fund. Experiences in developing countries have shown that a road fund can be a useful tool iffollowing some guiding principles. A road fund should have a strong legal basis, act as an independent
authority and have in-house technical capacity. Additionally, investment and maintenance should beallocated on separate budgets, as there is ample evidence of a systematic bias against maintenance. The
fund should be covered by road user charges that reflect the marginal cost of road use rather than
through general taxation.
Improve the connection to China via the Kulma passSupporting facts

Although it falls outside of international transport corridors and in particular outside of the CAREC
program, the road connecting Duchanbe to the Kulma Pass is heavily used for international road freight.
The connection could be improved through infrastructure upgrades and the provision of new roadfacilities.
The Kulma pass is the only border crossing point between Tajikistan and China. At an elevation of over
3 700 meters, it is a remote location characterised by extreme weather. In winter, the border crossing
point typically operates three days per week despite the fact that it constitutes the most direct road link
between Tajikistan and the Xinjiang Autonomous Region of China. Tajik trucks that do not cross at thispoint must access China through Kyrgyzstan, which entails additional border crossings, delays and costs.
The road currently connecting Dushanbe and the Kulma pass is 850 km long, two-thirds of which
traverses mountainous terrain. The road is in poor condition overall, which slows driving speeds. The
average truck speed between the Kulma Pass and Darvoz is less than 25 km/h (ITF computations basedon CPMM data (ADB, 2014)). Local interviews also revealed safety concerns. Most road sections arecharacterized by a gravel surface that is not suited for heavy duty trucks or for driving in snowy
conditions. The geometry of the road needs to be better adapted for international traffic. Currently the
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road is too narrow, its curves are too high and its gradients are too steep. In short, it does not comply
with international standards, such as the one set by the Intergovernmental Agreement on the Asian
Highway Network. The Ministry of Transport is considering rehabilitating several road sections on thislink with the aim of improving the driving conditions and road safety.
Furthermore, road freight associations, notably the Tajik Association of Road Transport (ABBAT) and the
Association of International Automobile Transport of Tajikistan (AIATT), have reported a lack of roadside
infrastructures between Darvos and the Kulma pass. In particular, there are few fuelling stations, motels
and health centres, which create difficulties for truck drivers.
Figure 45. Border crossing time at the Kulma pass border crossing point(entering Tajikistan from China)

Source: ITF computations based on CPMM data ADB (2014).

Finally, crossing the border at the Kulma pass continues to be time-consuming. In 2016, the average timerequired for inspection and customs clearance when entering Tajikistan from China was 5.5 hours (ITF
computations based on CPMM data). Most of this time (4.5 hours) was due to various inspections, suchas phytosanitary and health inspections or vehicle overloading inspections, which are not coordinatedwith the customs clearance process. The average amount of time spent on vehicle inspections is 1.3
hours, which is significantly greater than the regional average of 0.5 hours in Central Asian bordercrossing points. Additional delays of about four hours were spent waiting in queues and customs
controls, which accounted for the majority of the total border crossing time. The trend depicted in Figure
45 shows that, although the average crossing time has improved since 2011, it has recently begun toincrease again.
Possible measures to implement

Identify targeted investments through a road safety evaluation.
Improvements to the road leading to the Kulma Pass are currently under consideration and have alreadybegun for some sections. However, given the extent of the civil works required, the project is likely tolast for several years. In the short run, a focused strategy of targeted improvements could prioritise
projects that can be completed relatively quickly, at low cost, and that would result in marked
improvements to users’ experiences. This strategy would require authorities to identify the best valuefor-money investments by (i) conducting systematic, on-site reviews of the road conditions and (ii) by

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identifying and analysing black spots, i.e. locations where a high number of accidents occur. The typicalpractice of road safety inspections is common in many OECD countries and is gradually being applied indeveloping countries. Several best-practices guides have been produced by international organisations,such as the World Road Association (PIARC, 2012).

Key recommendations for Kyrgyzstan
There is a need to improve the efficiency and quality of road transport companies
operating in the domestic market
Supporting facts

The road freight sector is essential for the Kyrgyz economy. The Kyrgyzstan has developed a significant
economy around large bazaars, in particular the Dordoi market in Bishkek and the Karasu market near
Osh. These Bazaars are mainly wholesale markets that serve as re-export platforms that consolidate
goods from China and send them to other Central Asian countries. This generates significant, yet partly
informal, logistics activities. Although the global weight of the Bazaar economy is unknown, it represents
10% of the labour force in Bishkek (Saumya Mitra et al. 2009). The bazaar economy heavily depends on
shuttle trading through unlicensed operators using light-duty vehicles.
The road sector in Kyrgyzstan is loosely regulated. Any company can operate on the market provided itfollows the general commercial code. Unlike most countries around the world, including emerging
economies, market entry is not subject to any considerations of professional qualifications. Althoughsome technical regulations exist (with respect to working hours, vehicle safety standards and axle-loadlimitations), these are enforced mainly on the international market as inspections are only usually carriedout near customs border points. Authorities report that domestic trucks are often overloaded, which
accelerates road deterioration. Local interviews have also indicated that companies operating on thedomestic market do not always comply with international standards regarding safety, operational
efficiency and environmental impacts.
This gap in regulation has given unlicensed domestic operators an unfair competitive advantage overinternational operators, which has hindered the development of higher-quality services in the domestic
market. Very few trucking companies have developed specialised services such as refrigerated transport.
Road transport companies tend to be small (a large proportion are one-person operations) and operatewith old vehicles. Although no official figure is available, local interviews indicate that there are usually
2 employees per company, versus 3.5 in Eastern European companies. Limited company size means
there is little room for the optimisation of operations through shipment consolidation. The average truckis over 10 years old, which implies higher fuel and maintenance costs.

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Figure 46. Heavy duty truck age and number of employees perroad transport company in Kyrgyzstan

Finally, policy-makers need a better understanding of the road sector to identify productivity gains anddesign appropriate regulations. There is very limited data on the trucking industry because it is heavily
fragmented and largely informal. In particular there is no information on the cost structures ofcompanies, and very little is known about the geography of traffic flows.
Possible measures to implement

More regulation and enforcement are needed for the road freight sector. Given the essential role it playsin the Kyrgyz economy, a step-by-step approach is recommended. The Kyrgyz government should workin close relationship with all industry stakeholders. The following measures could be considered:Progressively implement a licensing system for domestic trucks – subject to professional
qualification, the stability of the commercial activity, a good business reputation and an
appropriate financial standing – inspired by existing regulations in Europe.



Increase enforcement, especially for weight regulations. This could be achieved by (i) acquiring‘weigh-in-motion’ equipment and implementing periodic anti-overloading campaigns and (ii)increasing the penalties for overloaded trucks and repeat offenders.



Develop and implement training programmes for road transport companies as well as for thirdparty logistics providers.

Key recommendations for Uzbekistan
The central administration has limited institutional capacity
Supporting facts

Transport infrastructure in Uzbekistan is currently owned and maintained directly by two joint-stockcompanies. The State Committee for Roads (SCR) (former Uzatoyul) manages 40 000 km of national andregional roads, which constitutes about 20% of the total network (the rest being under the responsibility

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of local authorities). Uzbekistan Temir Yollar (UTY) manages the country’s railway system and is also thenational rail carrier. Both companies are large monolithic organisations that lack transparency and arepoorly understood by policy-makers.
In the road sector, the Republican Road Fund (RRF), created in 2003 and hosted by the Treasury of
Uzbekistan, is responsible for planning regarding road investments, implementing projects, andmanaging the finances of road construction and maintenance activities (Decree of the President UP3292). The RRF works under the Cabinet of Ministers and is responsible for allocating budgets to the SCR.
It also acts as a client for major road works on international and national roads. In practice, the RRF
possesses limited resources in term of staff, employing around 60 people in 2016. It has difficulty incarrying out its responsibilities as the client of large construction projects, and it possesses limited inhouse civil engineering expertise. In this respect, the RRF tends to rely on the SCR, which remains themore technically competent body (ADB, 2015). According to the ADB, this unclear separation of roles hascreated friction between the organisation and helps to explain why the road asset management system
is not fully operational. In 2017 Uzbekistan separated the two functions between the agencies, leaving
the road maintenance planning function to the CSR and the actual implementation of road maintenanceand repair to the newly formed unitary enterprises under the Committee’s Directorate for Construction
and the RRF. However, the project planning and contracting has not been fully separated.
Finally, a multimodal vision for the transport sector has yet to be developed. Coordination between CSR
and UTY and between these companies and the central administration is limited. Neither a dedicatedlong-term transport strategy nor an administrative body in charge of multimodal transport planning
exists today. Until recently the sector was coordinated directly by the Cabinet of Ministers. A Ministry ofTransport was created in Uzbekistan in February 2019 with the aim of transforming the administration
and regulation of transport and the roads. The Ministry oversees the development and regulation of civil
aviation and air transport, railroads, river, rail and land transport. It also regulates policies to strengthencountry’s connectivity. It groups several existing institutions: the Road Committee; the Agency on Civil
Aviation (CAA); the Inspectorate on safety of the railroads; the Inspectorate on the quality of roads
construction; the River transport register; and Uzairnavigation Centre.
Recommendations

Strengthen the capacity of the government to strategically guide the transport sector.
The creation of the new Ministry for transport is a unique opportunity for Uzbekistan to:Create a proper planning body responsible for all modes of transport and for the development ofa long-term planning transport strategy;Increase its control over the SCR and UTY by creating a dedicated unit in charge of theiroversight and auditing, either directly in the newly created ministry or in an independent entity;and

Reorganise road network management by separating the planning and funding functions fromthe project contracting functions. Project contracting could be handled directly by the SCR,
which would then become a full-fledged road agency.

Efficiency gains could be achieved through railway reform
Supporting facts

Uzbekistan Temir Yollar (UTY) has maintained solid technical and operational expertise. The company is
profitable, does not rely on subsidies for operation, and is able to fund part of the investments necessary
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to preserve the current infrastructure and modernize its rolling stock (ADB, 2012). It has also successfully
managed to build and operate a high-speed train system between Samarkand and Tashkent.
Nevertheless, potential exists for improved productivity. Given the size of their network and the volumeof traffic they are dealing with, the workforce of the Uzbek railways is too large. The labour productivity
is currently 500–600 thousand traffic units per employee. This is 20% lower than that of neighbouring
Turkmenistan Railways and much lower than productivity in Kazakhstan, where there are 3.2 million
traffic units per operating employee. It is also considerably lower than the labour productivity observedin Russia, China and India (see Chapter 3, Figure 36). The rolling stock in the country is also ageing.
According to ADB, a large proportion of the wagon fleet (nearly 90%) will need to be replaced in the
coming decade.
The accountability of the company should also be improved. The reporting provided to the financeministry is limited to aggregated figures and the practice of cross-subsidisation makes it difficult to assess
the competitiveness of specific activities. In practice UTY is subject to limited oversight from thegovernment, which has no unit dedicated to supervising the activities undertaken by UTY and providing
strategic guidance.
Recommendations

Consider railway reform to unbundle the sector. It could include:The outsourcing of non-core activities (in particular social services) and the separation of core
activities into separately managed units.

The establishment of more transparent reporting rules. International best practice is followed
using the R-1 form of the U.S. Surface Transportation Board (STB), which is filed by every Class I(large) U.S. freight railway (STB, 2018). The R-1 form requests a wide range of financial
information as well as employment, wage and salary, tariff, commodity and operational
indicators.

The opening of the market to private railway operators to increase the capacity of railways andenhance productivity. This will require the creation of a regulator to ensure non-discriminatory
access to rail facilities for private operators.

Key recommendations for Mongolia
There is a need for more transport investments in growing Aimags
Supporting facts

In Mongolia, most of the population and economic growth occurs in three areas: the capital city of
Ulaanbaatar, the mining regions located in the south Gobi Desert, and in the north. The population isincreasingly migrating to these regions in search of employment. ITF computations based on GIS datafrom (Kummu et al., 2018) indicate that only three Aimags and the capital city accounted forapproximately 70% of the total GDP in 2015. Between 2010 and 2015, the average population andeconomic growth rates in these regions ranged between 9.7% and 7% per year respectively.
This trend could prove to be beneficial for the country. The concentration of people and firms in a few
key areas has the potential to generate significant economic growth through agglomeration economies.
Alone, however, this will not be sufficient. Economic research suggests that only well-managed and wellconnected cities are able to support sustained economic growth, as they allow a country to enjoy
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agglomeration economies while mitigating the associated costs (OECD, 2016). In particular it requires
significant investments in urban transport infrastructure within cities to tackle congestion problems, aswell as an efficient inter-urban transport network connecting major cities.
Figure 47. Investments in roads by location in Mongolia (%)

Figure 48. Aimags’ GDP between 1995 and 2015

However, transport investments in Mongolia do not reflect the importance of urban and inter-urban
networks. Between 2007 and 2011, over 60% of Mongolian road investments targeted regions outside of
the main centres of economic activity as part of a national policy to connect aimags with paved roads.
Major hubs of economic activity, meanwhile, suffer from an inadequate supply of infrastructure, whichhampers their economic development. Ulaanbaatar’s heavy traffic congestion, comparable to that of
Mexico, reflects this under-provision. An analysis conducted by the ITF ranked Ulaanbaatar as one the

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most congested cities in the world (OECD/ITF, 2017) with a congestion index of nearly 1. This means thatat the peak hour, travel times are nearly doubled due to congestion. This is high, especially for a city ofthis size (1.4 million people). In OECD countries, cities of 1 to 2 million inhabitants have an averagecongestion index of 0.5. Note that several solutions are under examination to deal with the Ulaanbaatar
city’s heavy traffic, such as the transfer of logistics terminals to a location outside the city or thedevelopment of mass transit public transport.
Recommendations

Invest more in economic centres and focus on best value-for-money investment in other regions.
While connecting rural areas is a valid policy objective, there may be more efficient ways of achieving
this connectivity. International reports (for example, World Bank, 2013) point out that low-cost
improvements in rural transport connectivity are feasible given that Mongolia’s terrain allows for
relatively good driving conditions on gravel roads. Although this unpaved network is periodicallydisrupted due to bad weather conditions, it could be made passable in all weather conditions bytargeting certain improvement priorities such as new bridges or culverts.
Note that the “Action Plan of the Government of Mongolia for 2016-2020” recognises the importance ofdeveloping the road network consistently with social needs and demand. Yet the practical consequenceson processes to plan infrastructure needs be implemented.

Key messages for Kazakhstan
Planned investments will improve connectivity, but increased transit flows will bea challenge
Supporting facts

Kazakhstan has made strides in improving its overall connectivity. Significant infrastructure investments
have already been undertaken. The Khrogos dry port located on the border between China andKazakhstan – a large logistic centre equipped to trans-ship containers because of the change in gauge – isalone an investment of over USD 3 billion. Transport infrastructures on international corridors have been
largely upgraded. Several successful reforms have been conducted on the railways and on the road
sector (see Chapter 4).
Yet there is still a significant disparity in connectivity levels between Kazakhstan and the most logisticallyadvanced countries, partly due to its landlocked situation. Because of higher transport costs to the mainmarkets, Kazakhstan can access 50% less economic opportunities, as measured in terms of world GDP,
than Germany, for example (see Chapter 2). This gap is partly explained by the remoteness of Kazakhstan
from main economic centres. However, low-quality infrastructure, high transport costs and long bordercrossing times explain more than 60% of the gap. These characteristics affect the country’s ability toeffectively integrate into global value chains.
Significant additional investments to foster connectivity are planned. Current investment plans will
reduce the existing connectivity gap. They will foster connection with foreign markets and increase theeconomic opportunities accessible to local companies by 7%.
Kazakhstan has prioritised attracting transit traffic as an objective. Increased transit, however, will bringchallenges along with benefits. By 2050, on international corridors, traffic could triple due to growing
flows from China to Europe transiting through Kazakhstan. Dealing with such volumes, especially on

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roads, will considerably increase maintenance costs. The increased financing required for transport
infrastructure projects risks raising the country’s debts to unsustainable levels. Transit traffic will also be
accompanied by negative consequences in terms of local pollution, congestion and road safety, issues
that are already faced by Kazakhstan.
Recommendations

Select projects that foster connectivity rather than transit.
The main benefit of ongoing international infrastructure projects is to better connect Central Asia toforeign markets – not to attract transit traffic. When projects are appraised, however, their impact onconnectivity is rarely quantified, whereas transit is always valued as a benefit. Appraisal methods should
be expanded so that the connectivity impact becomes the main criterion of prioritisation. This would
require conducting studies using geographic economy methodologies to understand how and to what
extend lowering transports costs and time will benefit national economies. Such studies can also reveal
whether and where international infrastructure projects may foster investments on main corridors.
Transit should cover its costs.
Although transport infrastructures are usually priced at the marginal costs of usage in order to maximise
efficiency, here it is recommended that the full range of costs associated with this activity is taken into
account. In particular investment, rather than just maintenance, should be covered. External costs,
including road safety, local pollution and CO2 emissions, should be also accounted for. Aligning road andrailway pricing with actual costs will require collecting new data and developing accurate cost models.
Consider what should be the role of private finance in infrastructure
Supporting facts

There is a growing interest in Kazakhstan for private financing through public-private partnerships (PPPs).
Although the concession law, adopted in July 2006, only led to localised small-scale PPPs, the law on
PPPs adopted in 2015, amended twice in 2016 and 2017, significantly increased the scope of PPPs. Threelarge-scale PPPs are currently under way: the Alamaty Ring road project (signed in 2018 for a total of
USD 670 million), Almaty’s light-rail transit project (in bidding process at the time of writing; costs
estimated at USD 240 million), and Alamaty railways bypass (under development at the time of writing;estimated cost at USD 297 million). Currently, although Kazakhstan has little experience in running largescale PPPs, it has created the Kazakhstan Public-Private Partnership Centre, a national centre of researchand expertise on the development of PPPs. It has a unified team of experts with knowledge and practicalexperience in the field of PPPs and focuses on research, examination and evaluation of theimplementation of investment projects in the field of PPPs.
Recommendations

Value for Money should be the primary motive for involving private finance in transport infrastructure andoperations.
Pursuing private finance with the purpose of obscuring the true public debt (the public debt accounting
motive) risks side-lining the objective of increased efficiency. Ultimately this may lead to the politicalunsustainability of pursuing private finance in transport (and more generally). Introducing an accounting
standard (like IPSAS32) neutralises the public debt accounting motive and allows one to pursue private
finance on the merit only of improved value for money.
The use of PPP model should be targeted.

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KEY RECOMMENDATIONSPolicy makers were long unclear about the circumstances in which a PPP actually delivers value formoney. ITF (2018) recently completed a major body of work that provides clear policy guidance on how
to involve private finance in transport infrastructure and operations. The work, based on contributions
by over 30 experts from OECD countries, has determined that for a PPP to deliver value for money itneeds to be subject to continuous pressure for efficiency. This only occurs when the private partner
bears the demand risk and the users can react strongly to service quality (i.e. are not captive). The basic
case where this occurs is when there is competition between different providers or alternatives. An
example for transport is airports which serve the same catchment area. The Public-Private Partnership
Centre could be instrumental in setting national guidelines to assess whether a PPP is the appropriate
methods to deliver a given project rather than traditional procurement.
Last-mile connectivity is a growing challenge
Supporting facts

National road networks that work as a feeder and distributor to international corridors should receive
more attention. Road capacity will have to be increased substantially on links connecting oblast capitals
with international corridors. ITF simulations show that several of them will not be able to cope with
future traffic otherwise. For example, the growth in traffic around Astana and Pavlodar may require
twice the infrastructure capacity currently available by 2050. Although additional studies would be
required to conclude on actual investments needs, this illustrates the importance of domestic
connectivity in the country.
Additionally, roads outside international corridors are poorly maintained, even on the national network.
To address this issue, Kazakhstan is currently implementing a Road Asset Management System (RAMS).
Kazakhstan road agency intends to perform regular data collection on the majority of its network, to set
proper data management and control in place, and to carry out regular analysis. This has the potential to
improve the efficiency of maintenance operations and ultimately the state of the network. However, it isimportant that the newly created RAMS is not treated as a stand-alone tool but is truly integrated into
the decision-making process.
While rail transport provides the backbone for international freight transport, releasing its full potential
requires intermodality between rail and road. An efficient connection of railway terminals to local
businesses is crucial and will ultimately depend on the capacity of grouping shipments transported bytrucks into full trains. Yet intermodality could be further developed by grouping logistics terminals. The
historical development of railways in the country has encouraged substantial fragmentation of terminals:
Kazakhstan has about 30 container terminals, all handling a small number of containers. Around 10
terminals are in the Almaty area, each handling at most 30 thousand twenty-foot equivalent units (TEUs)
per year – corresponding to a train a day (Rastogi and Arvis, 2014). This is low by international
comparison and given the cost of handling equipment. Consolidation would lower handling costs andfacilitate the concentration of logistics services around terminals.
Recommendations

Set up a consistent and transparent process for project selection.
With increasing infrastructure needs and constrained public budgets, Kazakhstan needs to maximise thevalue for money of its transport investments. Improving the project selection, would allow the targetingof investments where they are most needed from a national perspective. A systematic appraisal process
should be conducted to ensure that the project is financially viable and that it demonstrates value formoney. In particular, cost-benefit analysis (CBA) should be conducted systematically for investments

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over a certain threshold. They should follow standard, publicly available guidelines, containing values ofkey parameters to assess costs and benefits (such as value of time, of reliability or of tonnes of CO 2
avoided). The United Kingdom’s WebTAG is considered as OECD best practice (Box 18). Additionally, expost evaluation of projects should be conducted on a systematic basis to provide feedback.
Box 18. Web-based transport analysis guidance in England
Each major transport investment in England requires a thorough transport appraisal process. It is
built up over time and contains all the relevant information regarding a proposed scheme along fiveaspects:•

Does the project fit with wider public policy objectives: “the strategic case”•

Does it demonstrate value for money: “the economic case”•

Is it commercially viable: “the commercial case”•

Is it financially affordable: “the financial case”•

Is it achievable: “the management case”

To guarantee the comparability of approaches from one project to another, the Department forTransport developed web-based transport analysis guidance (WebTAG). WebTAG provides
information on the role of transport modelling and appraisal, and how the transport appraisal
process supports the development of investment. The appraisal process should be comprehensive,
but proportionate to the project’s size. It draws together information on a wide range of impacts –not only the direct impact on transport users and service providers affected by the project, but also
the impact of the intervention on the environment, wider society and government. WebTAG aims toprovide guidance on how to assess as many of these impacts as possible in terms of their monetary
value, thus allowing a direct comparison between the costs and benefits of a project. WebTAG are
publicly available and regularly updated by the Department for Transport.
Source: Adapted from OECD (2016b).

Apply a proactive and data-driven approach to transport asset management.
The development of a RAMS is an important first step but, given the challenging context of infrastructure
maintenance in Kazakhstan, agencies in charge of transport infrastructure could gradually consider stateof-art approaches to asset management. More and more road administrations are moving to proactive
maintenance where preventive, rather than reactive, measures are taken (see Box 19). In a proactive
maintenance strategy, damage growth is anticipated (or even predicted) so that appropriate actions aretaken ahead of time, even before any signs of damage are detectable. Although proactive approaches
are still under development, evidence suggests that proactive asset management allows significant
money savings while increasing the reliability of transport infrastructure.
Box 19. A German initiative to increase the reliability of transport infrastructures
Germany’s transport network is based on infrastructure that has been in use for a long time andwhich requires continuous maintenance. The growing age of bridges and other civil engineering
structures, combined with the rising loads during their period of use, increases risks in terms of
reliability. Previous maintenance strategies pursue a damage-based, reactive approach which, due to

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the size of the problem, is no longer able to guarantee the availability of transport infrastructures tothe required extent on a long-term basis. The Federal Ministry of Transport and Digital Infrastructure(BMVI) is therefore seeking to supplement it with risk-based procedures and behaviour models,
which also incorporate the damage that is not (yet) visible.
In 2016, seven departmental research facilities and executive agencies of the BMVI formed a
Network of Experts. Its focus is on forming a holistic view over the entire life cycle that takes into
account specific aspects of the structure, such as load-bearing capacity (utilisation level), usability,
planned residual service life, possible changes of use (including adjusted traffic load models) as wellas vulnerabilities at network and structural levels. This is the basis for evaluating infrastructurescomprehensively, by developing and implementing the best maintenance strategies. This proactive
approach should give road authorities access to well-founded, information-based statements on thereliability of the transport infrastructure, combined with an optimised utilisation of the service life.
Source: Adapted from ITF (2018).

Create efficiency incentives for public infrastructure managers and educate the market.
In Kazakhstan, as in many advanced economies, the road infrastructure functions are embedded in a
public corporation, which plans and manages, but (partly) outsources infrastructure construction andmaintenance through performance-based contracts. OECD experience has shown such institutions need
to be subject to incentive-based regulation (the utility regulation model), where competition is not an
option (e.g. motorway infrastructure and possibly railways). Furthermore, the infrastructure managers
should also invest in building the capacity of the market to accept advanced formats of contracting(information sessions, training seminars, guidance, etc.). Efforts such as these will be beneficial in ofthemselves and, if private finance is at some point included in these structures, the outcomes of thosearrangements would benefit as well.
Develop intermodality by grouping terminals.
Kazakhstan needs a strategy for developing intermodality with a focus on improving the last-mileconnection for international shipments. This would involve the creation of one or two large-scaleintermodal terminals, possibly by consolidating smaller ones, that would serve as national hubs. The
scale of such terminals (typically 200 000 TEUs per year) would allow the scheduling of regular block
trains to Europe and Asia at a high frequency. It would also stimulate the creation of specialised logistics
services that are likely to cluster around the terminal.
Better knowledge of the transport sector would improve the design of transport
policies
Supporting facts

Reliable data is available on the transport sector, but important gaps remain that prevent a good
overview of the sector. In particular, the geography of transport flows is unknown at a disaggregatedscale; there are no systematic surveys on the cost structure of trucking companies; and little data isavailable on the characteristics of shippers and shipments. Furthermore, to ITF’s knowledge, there is no
traffic forecast model based on a detailed description of transport supply and demand. Such a tool would
allow for a better assessment of transport infrastructure and related policies.

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Recommendations

Create a transport observatory.
Key activities of the observatory could include data collection, analysis, dissemination and benchmarking
for policy support. This would help to create trust in the data and analysis produced and would further
promote dialogue among stakeholders. In the longer term, the observatory could broaden its activities toinclude information pooling and synthesis, publication of flagship reports, and research and organisationof public events. Guidelines for creating a transport observatory can be found in ITF (2016).

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References
ADB (2015), "SECTOR ASSESSMENT: TRANSPORT (NONURBAN)"ADB (2014), "CENTRAL ASIA REGIONAL ECONOMIC COOPERATION CORRIDOR PERFORMANCEMEASUREMENT AND MONITORING: A Forward-Looking Retrospective",
https://www.adb.org/sites/default/files/publication/148731/carec-cpmm-forward-lookingretrospective.pdf
ADB (2012), Resettlement Planning Document, Republic of Kazakhstan: Astana Light Rail Transit Project,
Astana LRT LLP for Asian Development BankADB (2011), Developing Tajikistan’s Transport Sector: Transport Sector Master Plan, ,https://www.adb.org/sites/default/files/publication/28979/transport-taj.pdf
ITF (2016), "Logistics Observatory for Chile Strengthening Policies for Competitiveness", Case-Specific
Policy Analysis
Kummu, M., M. Taka and J. Guillaume (2018), Data from: Gridded global datasets for Gross Domestic
Product and Human Development Index over 1990-2015, Dryad Digital Repository
OECD (2016), "Regional Outlook 2016. Productive Regions for Inclusive Societies", OECD Publishings,
https://doi.org/10.1787/9789264260245-en
OECD/ITF (2017), "Mobility in cities", in ITF Transport Outlook 2017,https://doi.org/10.1787/9789282108000-en
PIARC (2012), "Road safety inspection guidelines for safety checks of existing roads", TechnicalCommittee 3.1 Road Safety
Rastogi, C. and J.-F. Arvis (2014), The Eurasian Connection Supply-Chain Efficiency along the Modern Silk
Route through Central Asia Trade, ,http://documents.worldbank.org/curated/en/730031468030581540/pdf/888910PUB0Box300EPI199120
June122014.pdf
Saumya Mitra, Bartlomiej Kaminski and Matin Kholmatov (2009), Bazaars and Trade Integration in CARECCountries

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Annex 1. The International Transport Forum’s
International Freight Model
The International Transport Forum’s (ITF) International Freight Model projects international freighttransport activity and related CO2 emissions up to 2050 based on global trade projections. The model
includes six main components, each feeding into the subsequent calculation:
The OECD’s trade projection is produced using a Computable General Equilibrium (CGE) model called the
ENV-Linkages model. The model is designed to estimate the dynamic evolution of international trade, interms of both spatial patterns and commodity composition due to the changes in the global production
and consumption of commodities. It is calibrated based on the macroeconomic trends of the
OECD@100’s baseline scenario for the period 2013–2060 at sectorial and regional levels. As such, it
projects international trade flows in values (USD) for 26 regions and 25 commodities until 2060. A global
freight transport network model is based on 2010 data.
The final outputs of the model are freight tonne-kilometres by transport corridor by mode and related
CO2 emissions. Each of the model components is described in more detail below.
Trade Disaggregation Model

The underlying trade projections are disaggregated into 26 world regions. This level of resolution does
not allow estimating transport flows with precision as it does not allow a proper discretisation of thetravel path used for different types of products. Therefore, we disaggregate the regional origin–destination (OD) trade flows into a larger number of production/consumption centroids. These centroids
were calculated using an adapted p-median procedure for all the cities around the world classified byUnited Nations in 2010 relative to their population (2539 cities). The objective function for thisaggregation is based on the minimisation of a distance function which includes two components: GDP
density and geographical distance. The selection was also constrained by allowing one centroid within a
500 km radius in a country. This resulted in 333 centroids globally, with spatially balanced results also for
all continents.
GDPyo
GDPyd
(1)
Tyodk =TyVLk V∑v=1 GDPyk ∑Ll=1 GDPyl
In Equation (1),
Tyodk = trade values from centroid o to centroid d in year y for commodity k,
TyVLk = trade values from origin region V to destination region L,o, d = origin and destination centroids,k = commodity k,
y = year of analysis,k = centroid that belongs to the origin region V,l = centroid that belongs to the destination region L.

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Transport network model

The model consolidates and integrates all freight transport networks based on open GIS data fordifferent transport modes. Seaports and airports are physically connected to road and rail networks withdata on intermodal dwelling times. Travel times by type of infrastructure and dwelling times between
transport modes are estimated using average speeds based on available information by region. The
model then computes the shortest paths between each production/consumption centroid for eachtransport mode (for the modes available for each link), generating two main inputs:

The average travel time and distance by mode for each origin destination pair (for countries withmultiple centroids, a weighted average of all centroid pairs is used);The shortest path between each centroid for each transport mode.

Centroids

The underlying trade projections are done with a regional aggregation of 26 zones. This introduces
significant uncertainties from a transport perspective as it does not allow a proper discretisation of thetravel path used for different types of product. Therefore, we disaggregate the regional origindestination (OD) trade flows into a larger number of production/consumption centroids. The centroids
were identified using an adapted p-median procedure for all the cities around the world classified by theUnited Nations in 2010 relative to their population (2 539 cities). The objective function for thisaggregation is based on the minimisation of a distance function which includes two components: GDP
density and geographical distance. The selection was also constrained by allowing one centroid within a
500 km radius in a country. This general optimisation procedure was then refined to ensure that all
regional capitals of the study area were represented as a centroid. This resulted in 404 centroids globally,
with spatially balanced results for all continents. Each centroid presents an estimation of GDP and
population, based on available raster data at 1 km resolution for the whole world.
Transport cost estimation

The routing alternatives generated from the transport network incorporate a distance-based cost plus atime-based cost added to the handling cost estimated for each world port given the stated capacity andcongestion level. The distance-based unit costs are a function of the mode of the links in the path (i.e.
road, rail, waterways or sea) that is differentiated by continent in their inland component. The timecomponent is estimated by multiplying the value of time for the estimated route time. The formal
definition of the maritime cost model, which presents more components, is delineated as follows:
𝐶𝑟 = ∑ 𝐴𝑝 + ∑ 𝑐𝑙 + 𝛼 (∑ 𝑇𝑝 + ∑ 𝑡𝑙 )
𝑝∈𝑟

𝑙∈𝑟

𝑝∈𝑟

(2)

𝑙∈𝑟

In Equation 2):
Cr = unit cost of route r from origin centroid to destination centroid (USD/Twenty-equivalent unit,TEU),
p = ports used by the route,l = links used by the route,
Ap = unit cost of transhipment at port p (USD/TEU),
cl = unit cost of transportation over link l (USD/TEU),

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Tp = time spent during transhipment at port p (days/TEU),
tl = time spent during transportation over link l (days/TEU),
α = value of transport time (USD/day).
The used value of time (in common for all commodity types) is 0.196 USD/hours per tonne.
Weight/value model

We used a Poisson regression model to estimate the rate of conversion of value units (dollars) intoweight units of cargo (tonnes) by mode, calibrated using datasets from Eurostat and the Economic
Commission for Latin America and the Caribbean (ECLAC) on value/weight ratios for different
commodities.
We use the natural logarithm of the trade value in millions of dollars as the offset variable, with panel
terms by commodity, a transport cost proxy variable (logsum calculation for maritime, road, rail, and airtransport costs per tonne between each pair of centroids), and geographical and cultural variables:
binary variables for trade agreements and land borders used above and a binary variable identifying if
two countries have the same official language. Moreover, economic profile variables were included todescribe the trade relation between countries with different types of production sophistication and scaleof trade intensity. We validate the output of the value-to-weight model using the UN Comtrade databasethat provides values and weights of all commodities traded between any countries worldwide.
ywyodk =Tyodk ersodk
gdp%yo

y
gdp%d

(3)
gdpc %yo

gdpc %yd

rsyodk =a+b1 e
+b2 e
+b3 e
+ b4 eygdpc
o+b5 ln () + b6 contigod + b7 langod +b8 rtaod
gdpc yd+lgsk e‐logsum(costod )(4)

In Equations (1) and 2),ywyodk wodk = weight of commodity k that is traded between origin o and destination d for year y (intonnes),Tyodk = value of trade for commodity k between origin o and destination d for year y (in USD),yyrsodk rsodk = value-to-weight conversion factor for commodity k, between origin o and destination dfor year y (in tonnes/USD),y
gdp%yo gdp%o = GDP percentile of origin in year y,yy
gdp%yd gdp%d gdp%d = GDP percentile of destination in year y,y
gdpc %yo gdp_c%o = GDP per capita percentile of origin in year y,y

gdpc %yd gdp_c%d = GDP per capita percentile of destination in year y,
gdpc yln (gdp oy ) = natural logarithm of the ratio between GDP per capita of origin and GDP per capita of
cd

destination in year y,contigod contig od = land contiguity between origin o and destination d, contig = (0, 1),
langod = shared language between origin o and destination d, lang = (0, 1),
rtaod = trade agreement between origin o and destination d, rta = (0,1),
logsum(cost od )logsum(costod) = logsum variable of transport costs using different modes between
origin o and destination d,d

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ANNEX 1

lgsk = logsum coefficient/panel term for commodity k.
Freight mode choice model

The mode share model (in weight) for international freight flows assigns the transport mode used for
trade between any origin–destination pair of centroids. The mode attributed to each trade connection
represents the longest transport section. All freight will require intermodal transport both at the origin
and destination. This domestic component of international freight is usually not accounted for in theliterature, but is included in our model. The model is estimated using a standard multinomial logit
estimator including commodity type panel terms on travel times and cost. Both Eurostat and ECLAC
datasets are used as sources of observation data for the volume of commodities and its mode oftransport. Transport costs and travel times are estimated using the network model and observed datawhenever available. Two geographical and economic context binary variables are added, one describing
if the OD pair has a trade agreement and the other for the existence of a land border between trading
partners. The mode choice model is validated by ensuring the mode share of the volume of goods
transported is similar to the observed mode share for international transport in 2011 by weight.
Additionally, the total tonne-kilometres for all four major modes of transport (air, road, rail, sea) are also
validated against the observed data. These observed data are obtained from reports of variousorganisations such as the International Maritime Organization (IMO), the International Civil Aviation
Organization (ICAO), and the World Bank.
mmmum
odk =ascm +CFk TCod +TFk TTod +Ct contigod +Rt rtaod

(5)

um
odk

Pm=

e

um
odk
∑M
m=1 e

(6)

In Equations (4) and (5),Pm = the choice probability of mode m,mum
odk uodk = the choice utility of mode m for commodity k between origin o and destination d,
ascmascm = alternative specific constant for mode m,
CFk CFk = transport cost coefficient for commodity k,mm
TCm
od TCod TCod = transport cost for mode m between origin o and destination d,
TFk TFk = travel time coefficient for commodity k,
Ctm Ct m = contiguity coefficient for mode m,contig odcontigod = contiguity variable between origin o and destination d, contig = (0, 1),
Rt = trade agreement coefficient,
rtaod rtaod = trade agreement variable between origin o and destination d, rta = (0, 1).
Freight flow assignment

The model is formulated as an equilibrium assignment with a shortest path optimisation for each
iteration for all transport modes except maritime routes and a path size logit model in combination witha path generation method to assign the volume of freight transport across all possible international
shipping routes between all origins and destinations. The model iterates until convergence (no variationof the set of paths selected). The model does this using a shortest path algorithm and choice set creation
algorithm to identify the sub-segments of the complete shortest route for each port-to-port segment of152

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a shipping line. The model accounts both for maritime connections between two countries and foroverland connections between the centroids. The route and port choice algorithms use a path size logit
model which takes overlaps between the alternative routes into account and distinguishes the transport
costs associated with these alternatives properly. The basis of this model can be found in (Ben Akiva andLerman, 1985). The model is calibrated by minimising the difference between observed and modelled
port throughputs for more than 400 major ports in the world. A detailed description on the model can befound in (Halim et al., 2016).
The model accounts both for maritime connections between two countries and for overland connections
between these countries. The route and port choice algorithms use a path size logit model which takes
overlaps between the alternative routes into account and distinguishes the transport costs associatedwith these alternatives properly. The basis of this model can be found in (Halim et al., 2016). The
following is the formal definition of the route choice model. The route probabilities are given byPr=e‐μ (Cr + ln Sr )∑Hh=1 e‐μ (Ch + ln Sh )(7)

while the path size overlap variable S is defined as
Sr = ∑a ∈ LKr

Za 1
Zr Nah(8)

In Equations (7) and (8):Pr = the choice probability of route r,
Cr = generalised costs of route r,
Ch = generalised costs of route h within the choice set,
CS = the choice set with multiple routes,
h = path indicator/index, ℎ ∈ 𝐶𝑆,
μ = logit scale parameter,a = link in route r,
Sr = degree of path overlap,
Lkr = set of links in route r,
Za = length of link a,
Zr = length of route r,
Nah = number of times link a is found in alternative routes.
Generation of the model outputs

The model components result with the value, weight and distance travelled (with path specification)
between 2010 and 2050, for each centroid pair, mode, type of commodity and year, stemming frominternational trade. The tonne-kilometres are then combined with information on related CO2 intensities
and technology pathways by mode, obtained from the International Energy Agency’s MoMo model (IEA,
2014) and the International Maritime Organisation (IMO, 2009). In case of road and rail, thesecoefficients and pathways are geographically dependent, while the maritime and air CO2 efficiencies are
considered to be uniform worldwide.
For technical details of the model, as well as some validation results, see Martinez et al. (2014).

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Freight transport network: A detailed representation

Assessing potential capacity constraints with precision is made possible within our modelling framework
through the inclusion of a detailed global freight transport network based on data from Geographic
Information Systems (GIS). This allows the model, although global, to describe network conditions at a
detailed scale. Our main contribution is the consolidation and integration of all different modal networks
into a single, routable freight network, and the association of capacity constraints to links and nodes.

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References
Ben-Akiva, M., Lerman, S.R., (1985). Discrete Choice Analysis. MIT Press, Cambridge, Massachusetts.
Halim, R.; Kwakkel, J.; Tavasszy, L.A. (2016). “A scenario discovery study of the impact of uncertainties in
the global container transport system on European ports”. Futures, 81, 148–160.
IEA (2014), International Energy Agency, Momo ETP 2014, IEA Energy Technology Policy Division, 2014.
IMO (2009), Second IMO GHG Study 2009, International Maritime Organization, 2009.
Martinez, L., J. Kauppila and M. Castaing Gachassin (2014), International Freight and Related CO2
Emissions by 2050: A New Modelling Tool, International Transport Forum Discussion Papers, 2014/21,
OECD Publishing, Paris. http://dx.doi.org/10.1787/5jrw1kslrm9t-en
UN Comtrade Database (2018). Available online on https://comtrade.un.org/, accessed on the15.07.2018.

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ANNEX 2

Annex 2. Impact of distance on reaching global
centres of production and consumption

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ANNEX 2

Source: ITF

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Enhancing Connectivity and Freightin Central Asia

Published: 05/2019 | Photo credit: Temuulen.B/ShutterstockThis report assesses freight connectivity in Central Asia, focusing
on Kazakhstan, Kyrgyzstan, Mongolia, Tajikistan and Uzbekistan. It
provides recommendations for improving connectivity and the policy
processes required to achieve this. The report also offers advice
on how regional co-ordination can improve freight efficiency andconnectivity. The analysis, both qualitative and quantitative, covers
questions related to hard infrastructure, policies and regulatory
frameworks.

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