RESEARCH & KNOWLEDGE MANAGEMENT Railway Infrastructure Upside Transit Potential SEPTEMBER 2017
Table of content 1. Key highlights 3 2. Railway industry overview in Kazakhstan 4 3. Railroad infrastructure 6 4. International railway corridors 7 5. Special economic zones 9 6. One Belt & One Road initiative 10 6.1 Program overview 10 6.2 Potential impact on Kazakhstan 13 7. Conclusion 16 REFER TO DISCLAIMER & DISCLOSURES AT THE END OF THIS PUBLICATION 2
1. Key highlights Transportation sector plays an important role in Kazakhstan s economy because of its commodity-based orientation and immense territory. Rail transport is the basis of the national transport system, comprising about 46% of country s overall freight turnover in 2016 (237 bln ton-km), while automobile transport accounted for 31%, pipeline transport - 22%, air and water transport - 1%. Freight turnover structure by modes of transportation, bln ton-km (2011-2016) 600 500 400 300 200 100 0 2011 2012 2013 2014 2015 2016 Rail Road Pipelines Inland water and marine Air Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna Railway sector s revenue increased from KZT647bln in 2011 to KZT730bln in 2016, representing approximately 33% of the overall transportation revenue. Cargo transportation is the dominant source of revenue for the Kazakhstan s railway industry, with the revenue contribution of over 88%. The sector transported more than 22 mln passengers in 2016, compared to 20 mln passengers in 2011, while overall passenger turnover reached 17 bln revenue passenger kilometers (rpk), with 5-year CAGR amounting to 1%. Meanwhile, rail freight turnover amounted to 237 bln tonkm in 2016, compared to 220 bln ton-km in 2011, while the volume of freight transported via railways grew from 277 mln tons in 2011 to 332 mln tons in 2016 with 4% CAGR. One Belt & One Road (B&R) initiative comprises two physical routes, with several intermediate hubs along the way, connecting China with Europe, Africa and Southeast Asia. The initiative will concentrate on the investments in a wide array of assets, including ports, roads, railways, airports, power plants, oil and gas pipelines and refineries, with total cost of already arranged projects in Asia region amounting to USD250bln. Kazakhstan s economy is expected to benefit from B&R program implementation, with Asia- EU-Asia transit volumes transported via Kazakhstan forecasted to increase to 1,700,000 TEU by 2020 from 47,400 TEU in 2015, according to McKinsey estimates. Consequently, B&R is projected to contribute additional 0.7pp-1pp to annual Kazakhstan s GDP growth by 2021, creating over 200,000 jobs and driving total investments to more than USD7bln over next five years. 3
2. Railroad industry overview in Kazakhstan Kazakhstan is characterized by significant distances both between population centers and between suppliers of raw materials and their intermediate or end customers. Transportation sector plays an important role in the country s economy because of its commodity-based orientation and immense territory. Water transport accounts for only negligible part of the total freight turnover due to the country s continental location while automobile transport is not favorable for long distances due to high cost. Consequently, rail transport is the basis of the national transport system, comprising about 46% of Kazakhstan s overall freight turnover in 2016 (237 bln ton-km), while automobile transport accounted for 31%, pipeline transport - 22%, air and water transport - 1%. However, by the volume of transportation (tons) automobile transport exceeds rail transport by more than nine times, constituting around 85% of overall freight volume transported in 2016. This can partially be explained by a relatively short average distance of automobile transport, compared to railways. Freight turnover structure by modes of transportation, bln ton-km (2011-2016) 600 500 400 300 200 100 0 2011 2012 2013 2014 2015 2016 Rail Road Pipelines Inland water and marine Air Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna Railway sector s revenue increased from KZT647bln in 2011 to KZT730bln in 2016, representing approximately 33% of the overall transportation revenue. Cargo transportation is the dominant source of revenue for the Kazakhstan s railway industry, with the revenue contribution of over 88%. Kazakhstan's railway sector revenue, KZT mln (2011-2016) 800,000 600,000 400,000 200,000 0 2011 2012 2013 2014 2015 2016 Passenger revenue Freight revenue Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna 4
The sector transported more than 22 mln passengers in 2016, compared to 20 mln passengers in 2011, while overall passenger turnover reached 17 bln revenue passenger kilometers (rpk) in 2016, with 5- year CAGR amounting to 1%. Kazakhstan s railway sector passenger turnover (2011-2016) 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2011 2012 2013 2014 2015 2016 Passenger turnover, rpk mln Passengers transported, '000 Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna Rail freight turnover amounted to 237 bln ton-km in 2016, compared to 220 bln ton-km in 2011, while the volume of freight transported via railways grew from 277 mln tons in 2011 to 332 mln tons in 2016 with 4% CAGR. Kazakhstan s railway sector freight turnover (2011-2016) 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 2011 2012 2013 2014 2015 2016 Freight turnover, mln ton-km Freight transported, '000 tons Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna Investments in fixed assets in the transportation sector amounted to KZT555,528mln in 2015, compared to KZT647,794mln in 2014. Investments in pipeline and railroad transport accounted for 89% of the total investments in 2015, while railroad infrastructure investments stood at KZT175,049mln, compared to KZT205,799mln year earlier, implying that the transportation sector optimizes its capital expenditures in the period of moderate macroeconomic conditions. 5
Fixed asset investments by mode of transportation, KZT mln (2011-2015) 2011 2012 2013 2014 2015 Railroad 218,654 253,054 243,085 205,799 175,049 Automobile 24,257 27,687 29,875 27,778 46,531 Pipeline 148,017 193,177 635,956 385,459 320,491 Inland water 13 8 1 22 1 Sea 20,030 1,409 2,965 4,719 1,482 Air 10,298 19,866 51,938 24,017 11,974 Total investments 421,269 495,201 963,820 647,794 555,528 Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna Tariffs in the railroad sector rose significantly during 2010-2012 due to intensive investment requirements. Tariffs for accessing mainline railway network (MRN) are set and approved by the Agency of the Republic of Kazakhstan on regulation of natural monopolies (AREM). The MRN tariff (domestic, import and export) methodology is cost-plus, reimbursing all economically justified expenses arising from the provision of services and corresponding investments. Freight transportation tariff indices (2010-2016) 2010 2011 2012 2013 2014 2015 2016 Railroad 119.1 121.5 114.8 101.7 105.7 120.8 103.9 Automobile 102.1 103.4 105.0 101.4 103.2 98.4 101.6 Pipeline 100.1 108.8 118.5 103.3 124.2 135.2 105.6 Inland water 164.9 114.7 104.5 100.4 103.1 99.5 100.0 Air 100.0 100.0 104.3 100.0 100.0 100.0 122.3 Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna 3. Railroad infrastructure The mainline railway network is Kazakhstan s strategic asset and is not subject to privatization. KTZ provides access to the mainline railway network in accordance with tariff set by the Agency for Regulation of Natural Monopolies (AREM). The company is also responsible for building, maintaining and modernizing railway system in Kazakhstan, being the only entity authorized to operate and manage the domestic railway track. Kazakhstan's rail network composition (2016) 27% 73% Electrified Non-electrified Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna 6
The track network stretches over 15,530 km, of which 4,217 km are electrified, and only 4,900 km is double - track railway. High share of single-track railway limits the capacity of additional freight turnover and significantly decrease the train speed, especially during high traffic density, with high-speed lines with more than 250 kmh not available yet. Kazakhstan s railway system consists of nine mainline railway networks and has 16 connection points with rail networks of neighboring countries, of which 11 are connected with Russia s railway network, two with China s and one with Kyrgyzstan, Uzbekistan and Turkmenistan respectively. The majority of transport corridors have a north-south direction because most of railway lines were constructed during the period of Soviet Union, implying interdependence between railway systems of Kazakhstan and Russia. Mainline railway networks in Kazakhstan Freight turnover, Mainline network Brief Description Length, km bln ton-km Aktau - Beineu - Makat - Kandyagash - Arys - Lugovaya - Almaty - Aktogay - Dostyk Presnogorskaya - Kokshetau - Astana - Dostyk Petropavlovsk - Astana - Dostyk Tobol Astana Iletsk - Aktobe - Kandyagash - Arys - Saryagash Ozinki - Kandyagash - Arys - Lugovaya - Almaty Aktogay - Dostyk Saryagash - Arys - Lugovaya - Aktogay - Dostyk Aksarayskaya - Makat - Beineu - Oasis Source: KTZ, Samruk-Kazyna Connects Western Kazakhstan to the Kazakhstan-China border through the southern regions of Kazakhstan 29.6 4,121 Connects the Kazakhstan-Russia border to the Kazakhstan-China 22.6 2,043 border Connects Northern Kazakhstan to the Kazakhstan-China border 19.9 1,902 Connects Northern Kazakhstan to Astana 14.4 665 Connects Russia to Southern Kazakhstan 11.3 1,754 Connects Western Kazakhstan- Russia border to the Kazakhstan- China border 22.9 3,708 Connects Southern Kazakhstan- Russia border to the Kazakhstan- 13.7 1,824 China border Connects Western Kazakhstan- Russia border to the Kazakhstan- 7 826 Uzbekistan border 4. International railway corridors Kazakhstan s railway network contains a number of international transport routes, formally included in the system of Euro-Asian land corridors. Sino-Kazakh transport corridor from the sea port of Lianyungang (the eastern coast of China) through the border crossing Dostyk - Alashankou and the territory of Kazakhstan, with access to the road network in Russia, takes a special place. Improvement of railway infrastructure in the corridors is a real step in the gradual increase of competitiveness of Kazakhstan's transport system in the Euro-Asian international transport routes. 7
Kazakhstan s railway system forms part of five international transport corridors, which facilitate the delivery of freight between Asia and Europe. The Trans-Siberian and Trans-Asian railway corridor could potentially carry around 10% (1,700,000 TEU) of the total EU-Asia transport volume in 2020, provided that most physical and institutional barriers are removed and assuming constant trade volumes between the EU and China. International railway corridors International railway Description Characteristics Comments corridors Northern Trans-Asian railway The second most developed corridor and referred to as the second Eurasian overland bridge. It runs from Lianyungang through Central and Northwest China, Kazakhstan and Russia to The total distance is 11,516 km, 89% of which is double tracked, 29% - electrified. China and Kazakhstan use different gauges. This poses a major problem since containerized cargoes have to be reloaded by crane. Western Europe. Southern Trans-Asian railway It starts from Lianyungang and passes through Dostyk, Almaty, Tashkent, Iran and Turkey before reaching the Mediterranean and Black Sea ports. The total distance is 10,989 km, 10% of which is double tracked, 46% - electrified. The different gauges require transshipment at two points. The Iranian part is single track and not electrified. In Turkey, trains have to cross Lake Van by ferry. Connects Eastern Europe with Central Asia via Black Sea, and Caucasus and This project includes Dostyk - Tashkent - Ashgabad - Cargoes are shipped mainly from west to east, with mostly empty TRACECA Caspian Sea (Dostyk Turkmenbashi - Baku - wagons travelling in the Almaty Aktau, including Tbilisi - Poti route with opposite direction. This Zhezkazgan Beineu, Akhalkali (Georgia) Kars (Turkey)). sea ferry connections to Odessa, Varna, Constanta and Istanbul. has a negative effect on the efficiency of Caspian and Black Sea ferry lines. Access of Central Asia and Russia to the Middle East and South Asia and the Indian Ocean. Kazakhstan, The total distance is North-South Turkmenistan and Iran 6,191 km. corridor made investments to develop this route, called Uzen-Kyzylkaya-Bereket- Etrel. Source: EU-Central Asia Monitoring, Samruk-Kazyna 8
The TRACECA corridor, by contrast, has the potential to carry only around 1% of total transport volume, owing to the many obstacles along this route. The Trans-Siberian (TSR) and the Trans-Asian railway corridors are the most attractive ones at present, with the Kazakhstan s corridor being slightly more attractive than TSR. By 2020, TSR is forecasted to be most practical for railway transports from Northern Europe, followed by the Trans-Asian Route. This is partly due the fact that the TSR route involves the fewest number of border crossings and transshipments. However, the Trans-Asian Route potentially offers the shortest distance, shortest transit time, and lowest transportation costs for cargo from China s coastal or inland provinces. If the transshipment at the Dostyk-Alashankou border crossing is improved, the Trans-Asian Route will be the most optimal option for railway transport from Northern Europe to Western China. Railway corridors going through Kazakhstan Source: Ministry for Investments and Development 5. Special economic zones To better complement the expected increase in cargo traffic passing through the new Eurasia land bridge, 10 special economic zones (SEZs), all with different sectorial focus and priority activities, are being founded and further developed across Kazakhstan, including the USD3.5bln Khorgos-East Gate SEZ near the Chinese-Kazakh border. SEZs are being established to encourage trade, and offers advantageous terms to businesses. Khorgos-East Gate SEZ, located on the border between China and Kazakhstan, has fast become one of the anchor projects for transforming Kazakhstan into a major commercial and transportation hub of the Eurasian continent. The zone hosts several facilities: International Center for Boundary Cooperation (ICBC), a dry port, logistics and industrial zones, ready connection with the Zhetygen-Khorgos railway and West Europe-West China highway and a package of attractive fiscal benefits, including exemption from import tariffs, land tax, property tax and value-added tax. 9
Khorgos s capacity currently is 200,000 containers per year and is expected to reach 500,000 by 2020. China was a major supplier of funds, whereby China s Jiangsu province recently promised to invest more than USD600mln for developing the surrounding infrastructure in Kazakhstan. KTZ Express, a subsidiary of Kazakhstan Railways, opened an international development office in Hong Kong. It plans to build a platform to promote multimodal freight logistics between Europe and China via Kazakhstan. The company has also invested in a 21-hectare intermodal freight and logistics center at the port of Lianyungang in China, aiming to provide direct access to Central Asia for cargo coming from Japan, Korea and Southeast Asia. Special Economic Zones Special Economic Zone Year of foundation Sectorial focus Astana New City 2001 Mixed (aviation, chemical, light industry, automobile manufacturing) Sea port Aktau 2002 Mixed (chemical, light industry, metallurgy industry) Innovation Technology Park 2003 Innovation and instrumentation Ontustik 2005 Light and textile industries National Industrial Petrochemical Park 2007 Petrochemical industry Burabay 2008 Tourism Khorgos-East Gate 2011 Logistics Saryarka 2011 Metallurgy and metal processing Pavlodar 2011 Chemical and petrochemical industries Chemical Park Taraz 2012 Chemical industry Source: Kaznex Invest, Ministry of Industry and New Technologies, Samruk-Kazyna 6. One Belt & One Road initiative 6.1 Program overview The One Belt & One Road (B&R) program introduced by China s government to improve connectivity between the Asian, European and African continents, is anticipated to enhance trade flows and drive long-term regional economic growth. The initiative comprises two physical routes, with several intermediate hubs along the way, connecting China with Europe, Africa and Southeast Asia. It represents a collection of all current, planned and future infrastructure projects, accompanied by a variety of bilateral and regional trade agreements. B&R will concentrate on the investments in a wide array of assets, including ports, roads, railways, airports, power plants, oil and gas pipelines and refineries, with total cost of already arranged projects in Asia region amounting to USD250bln. In addition, China s government is expected to mobilize approximately USD1tln of state financing over the next 10 years to fund infrastructure spending in the countries along the B&R road. 10
B&R initiative coverage map Source: PWC B&R initiative will have a broad geographical coverage, involving more than 65 countries with approximately 4.4 bln population. The program will facilitate trade flow within the connected regions, with constructed infrastructure leading to shorter transit time and lower transportation costs. The program will provide a connection between Asia, Europe and Africa via five routes, representing a synergy of the Silk Road Economic Belt and the 21st Century Maritime Silk Road programs. The Silk Road Economic Belt is expected to connect China to Europe and the Middle East through Central Asia and Russia, reinforcing China s integration with Southeast Asia and South Asia regions. Meanwhile, the 21st Century Maritime Silk Road is aimed to improve marine infrastructure of China s coastal ports, linking the country with Europe through the South China Sea and Indian Ocean and connecting China with the South Pacific Ocean. Concentrating on the above five roads, B&R will utilize global logistic corridors, core cities and key ports in order to increase the degree of cooperation across the participating countries, creating six international economic routes, including the New Eurasia Land Bridge, China-Mongolia-Russia, China- Central Asia-West Asia, China-Indochina Peninsula, China-Pakistan, and Bangladesh-China-India- Myanmar. The countries covered by B&R initiative are expected to unlock substantial value potential, with Pakistan, Laos, Russia and Kazakhstan benefiting from considerable amount of infrastructure spending and subsequent efficiency gains. However, countries that are not directly participating in B&R program will still profit from China s rising fixed asset investments. Pakistan has been among the main recipients of China s investments, with the country involved in over 50 projects in Pakistan with the value of over USD73bln, accounting for 28% of Pakistan's GDP in 2016. Russia will also receive substantial infrastructure financing, with the primary focus on transport and pipelines, while Bangladesh and Indonesia will be the primary beneficiaries of investments in Asia, improving the infrastructure value chain and facilitating their transformation into regional manufacturing hubs. 11
Total value of B&R projects and deals, USD bln (2011-2016) 500 400 300 200 100 0 2011 2012 2013 2014 2015 2016e Total projects value Total deals value Source: PWC, Samruk-Kazyna Being one of six corridors forming B&R initiative, Southeast Asia's economies are favorably positioned to gain from the associated boost in infrastructure. However, the activity in the opening years suggests that ASEAN region is a lower priority. The first investments by the Silk Road Fund were projects in the Pakistan corridor and in the Middle East, with other funding have been oriented westward. Meanwhile, China's Asian Infrastructure Investment Bank (AIIB) is currently supporting efficiency upgrades in Indonesia and a power plant in Myanmar, with only one proposal out of 11 preliminary projects originated in ASEAN region. One container shipping cost and time from Chongqing to W. Europe Price Time Sea USD1,500-3000 38-45 days Train USD3,500-5,500 16-20 days Air USD20,000-25,000 1-2 days Breakdown of EU-China Trade Road 7% Rail and others 8% Air 23% Sea 62% Source: UNECE, Samruk-Kazyna The main advantage of land transport corridors is their shorter cargo delivery deadlines. Railroad route travel from Asia to Europe is at least two times shorter than marine route travel time. The shortest cargo delivery time from Eastern China and other Southeast Asian countries to Western Europe by rail or road is 2-2.5 times shorter than sea shipment via the Suez Canal, with shorter delivery time being a critical factor for certain cargoes (perishable goods or urgent door-to-door shipments). In addition, faster delivery means quicker receipt of cash from the bank and shorter transaction times. 12
Consequently, the time factor is a valuable competitive advantage that overland routes can offer for certain commodities, customers and for land-locked regions such as Xinjiang Uigur Autonomous Region, which has no viable alternative to rail and road transit. For example, the large China s port of Lianyungang has a direct railroad link to the Dutch port of Rotterdam. It currently takes 14 days to carry cargo by railroad from Lianyungang to Berlin (11,000 km) while sea carriage requires 30-35 days. 6.2 Potential impact on Kazakhstan Kazakhstan has been one of the biggest recipient of Chinese FDI in Central Asia, with the total FDI stock amounting to USD15.2bln at the end of 2016. Transportation, finance, mining and manufacturing were the main beneficiaries of China s investments. China s FDI stock distribution (2016) 11% 8% 9% 38% 16% 18% Transportation Finance Mining Manufacturing Construction Other Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna One Belt & One Road program implementation in Kazakhstan is expected to be faster than in other participating countries due to substantial synergies with Nurly Zhol program and optimized legal and regulatory framework. The majority of Nurly Zhol projects may be considered as a part of a broader B&R framework, as they directly contribute to the improvement of Kazakhstan s infrastructure and EU- Asia transit potential. In particular, Khorgos Gateway, a dry port on the China-Kazakhstan border, currently represents a key logistics hub on the New Silk Rod. The facility, which was specifically designed to process containerized cargo, is expected to considerably increase Kazakhstan s transit capacity, with the total project cost to date amounting to over USD230mln. Khorgos may process more than 16,000 containers daily, offering a range of logistics solutions, including freight reloading, formation of container trains and documentary support. In May 2017, as a part of B&R program implementation, China s investors, COSCO Shipping and Lianyungang port, agreed to further develop Khorgos s infrastructure base, acquiring 49% stake in the terminal. Another key logistics project, Kuryk seaport, which is located in Mangistau region, will significantly increase Kazakhstan s marine transit capacity. Enabling direct reloading from trains and trucks to ferries, the port is expected to stimulate freight shipments to Europe and Middle East via Azerbaijan and Iran. Construction of the first project s phase was completed in December 2016, with the total of 44 13
logistics facilities commencing their operations. To date, Kuryk has processed more than 400,000 tons of cargo, with 1 mln tons estimated to be processed in 2017. Other main infrastructure projects in Kazakhstan, which could be attributable to B&R, include several railways (Zhezkazgan Beineu, Arkalyk Shubarkol, Almaty Shu) and logistics hubs in Astana and Shymkent. Main projects, considered as a part of B&R initiative in Kazakhstan Project Cost, USD mln Development period 1 Khorgos terminal 239 2014-2020 2 Kuryk port in Mangistau region 280 2015-2018 3 Zhezkazgan-Beineu railway 1,203 2012-2017 4 Arkalyk-Shubarkol railway 261 2012-2017 5 Almaty1-Shu railway 110 2015-2017 6 7 New railway hub in Astana, including train station Logistic terminal in Shymkent (Southern Kazakhstan region) 603 2013-2017 46 2014-2017 8 Logistic terminal in Astana 88 2014-2016 9 Modernization of Aktau port 121 2014-2017 Source: KTZ, Samruk-Kazyna Kazakhstan s economy is expected to benefit from B&R program implementation, with Asia-EU-Asia transit volumes transported via Kazakhstan forecasted to increase to 1,700,000 TEU by 2020 from 47,400 TEU in 2015, according to McKinsey estimates. B&R initiative synergy with Nurly Zhol program Exponential growth in transit volumes transported via Kazakhstan by 2020 1 More than USD9bln of infrastructure spending in addition to B&R financing 47,000 TEU in 2015 1,700,000 TEU by 2020 2 Already substantially modernized rail and road infrastructure 3 Optimized legal and regulatory infrastructure framework Source: KTZ, Mckinsey & Company, Samruk-Kazyna 14
In January 2017, the first container train from China arrived to London, covering a distance of 7,500 miles. It had passed through Kazakhstan, Russia, Belarus, Poland, Germany, Belgium and France, finally crossing under the English Channel into Britain. The total duration of the trip amounted to 18 days, implying almost two times faster cargo delivery time, compared to the marine transportation. Estimated cargo delivery time from Yiwu (China) to London Land route via Kazakhstan 18 days Sea route 36 days Source: KTZ, Samruk-Kazyna Consequently, industries, which are primarily engaged into transportation or processing of containerized cargo, are expected to outperform the overall Kazakhstan s economy over the medium term, with the growth exceeding GDP growth. These industries comprise rail and road transportation, logistics and marine, rail and road infrastructure. Potential B&R spillover effects on Kazakhstan USD7bln of estimated infrastructure investments over the next 5 years 0.7pp-1pp contribution to annual domestic GDP growth by 2021 Over 200,000 jobs created by 2021 Source: SCMP, Samruk-Kazyna B&R is forecasted to contribute additional 0.7pp-1pp to annual Kazakhstan s GDP growth by 2021, creating over 200,000 jobs. In addition, the country s economy will considerably benefit from ongoing infrastructure improvements, with total investments size reaching more than USD7bln over next five years. 15
7. Conclusion Rail transport is the basis of the national transport system, comprising about 46% of country s overall freight turnover in 2016 (237 bln ton-km), while automobile transport accounted for 31%, pipeline transport - 22%, air and water transport - 1%. However, by the volume of transportation (tons) automobile transport exceeds rail transport by more than nine times, constituting around 85% of overall freight volume transported in 2016. This can partially be explained by a relatively short average distance of automobile transport, compared to railways. B&R infrastructure investments are expected to have a positive impact on the regional trade, reducing logistics costs, driving new trade deals and facilitating the development of new manufacturing export hubs outside of China. In particular, the strongest momentum in external trade gains will be observable in emerging markets with below-average development, including Bangladesh, Cambodia, Laos, Pakistan, Myanmar. This is partially attributable to low-base effect and favorable positioning across coverage routes. On sectorial front, considerable infrastructure investments under B&R initiative will result in spillover effects in a form of additional demand for construction materials and services. In particular, developing nations in Asia are expected to spend USD776bln annually to fund infrastructure projects by 2020, creating over 580 mln tons of annual cement demand, based on historical correlations with fixed-asset investment in the region and accounting for more than 25% of China s cement production. Average percapita cement output stood at 380 kg in Southeast Asia and 300 kg in Central Asia, being less than the global average of 600 kg and China's 1,800 kg and implying significant potential demand. Kazakhstan s economy is expected to benefit from B&R program implementation, with Asia-EU-Asia transit volumes transported via Kazakhstan forecasted to increase to 1,700,000 TEU by 2020 from 47,400 TEU in 2015. In January 2017, the first container train from China arrived to London, covering a distance of 7,500 miles. It had passed through Kazakhstan, Russia, Belarus, Poland, Germany, Belgium and France, finally crossing under the English Channel into Britain. The total duration of the trip amounted to 18 days, implying almost two times faster cargo delivery time, compared to the marine transportation. Potential B&R spillover effects on Kazakhstan USD7bln of estimated infrastructure investments over the next 5 years 0.7pp-1pp contribution to annual domestic GDP growth by 2021 Over 200,000 jobs created by 2021 Source: SCMP, Samruk-Kazyna 16
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