Massive New 'Silk Road' Port Set To Transform Georgia And Enhance China-Europe Trade

“This is a Silk Road project,” Dato Kodue said as we stood on the site of the impending Anaklia deep sea port. “Here is called the Silk Road Belt.”

Kodue is the director of development for Anaklia, a region in western Georgia on the coast of the Black Sea that is currently undergoing a complete economic, infrastructural, and social overhaul. Where not long ago there was nothing but an empty beach, a tourist resort has arisen; where there was only a small village before, there is now a strip of luxury hotels; where there is currently only small farms and pastures for cows there will soon be a massive new port that is poised to become a game-changing gateway between Europe, Central Asia, the Middle East, and China.

I stood at the site of the port and looked out at the empty expanse of beach that stretched virtually unimpeded for 25 kilometers down the coast to Poti, one of Georgia’s current ports. Little had been constructed here yet besides a pointless three story tall abstract statue and a contorted building that the former president built and left deserted — reputedly as a publicity stunt to help win an election. The place was essentially a 1,000 hectare blank slate for development that will soon be home to an 8,000 worker port and a corresponding free industrial zone (FIZ).

Construction is set to begin at the Anaklia deep sea port at the end of 2016.
Image: Wade Shepard.

“This idea began in the 1960s by the scientists,” Kodue told me as we looked out across the rural emptiness. “When they did draft research, [they selected this as] the most appropriate place.”

This location on the coast at Anaklia has the deepest canyon in the Black Sea basin, allowing for 16 meters of draft, and designs for a deep sea port here date back to Soviet times.

Today, building a fully modern port at Anaklia is part of Georgia’s broader ambition to revive its historic position as a transit corridor, connecting east and west as well as serving as a regional hub.

“The commercial logic of this project is that we are a gateway country so this port is a gateway port,” spoke Levan Akhvlediani, the CEO of theAnaklia Development Consortium (ADC), the investment group that wasawarded the tender to build and manage the port. “Georgia is the only Black Sea country that does not have a deep sea port. Our current ports are very old, both of them were built in the 19th century. . . none of them were designed to meet modern maritime needs.”

The largest vessels that Georgia’s existing ports at Poti and Batumi can handle are around 1,500 TEU, which amounts to little more than Black Sea feeder vessels.

“As a region, over time our competitive advantages as a transit corridor have diminished significantly because of extra costs in the exchange of goods and the logistics cost,” Akhvlediani explained. “All of this is due to outdated infrastructure. So the government is really looking into enhancing the corridor and getting back the leading role as a transit country.”

The shortest distance to transport goods overland between China and Europe goes through the Southern Caucasus — right across Georgia — but the cost of doing so is significantly higher than other emerging corridors, such as those which run through Russia and Kazakhstan.

The Anaklia deep sea port is a key piece of Georgia’s plan to establish its position as a major station on a revived Silk Road. In addition to building essential transportation infrastructure, the government has also been signing free trade agreements with an array of major economic players in all directions. Since 2014, Georgia has had a Deep and Comprehensive Free Trade Agreement with the EU, which allows Georgian products to enter Europe duty free, free trade regimes with most Central Asian countries, Russia, and Turkey, as well as preferential trade agreements with the USA, Norway, Switzerland, Canada, and Japan. Georgia is also in the process of working on a monumental free trade agreement with China. In essence, Georgia is trying to set itself up as a base camp for countries from every corner of Eurasia to set up shop and manufacture goods that can be efficiently and cheaply exported elsewhere.

“Anaklia will be the last gate connecting China to Europe in the Silk Road,” Akhvlediani said. He then explained that these new trans-Eurasia trade routes are mostly for high-value goods, as overland transport is more costly than sea. “For high-value goods, with a container value over say $250,000, the extra cost for transport is really immaterial,” he said. “What’s more important is saving even one day of transit. That is why the Silk Road is actually attractive.” As a junction along this enhanced trans-Eurasian transport network, Georgia is under 10 days out from China and within four days of any point in Europe.

Under the slogan “Breathing new life into an ancient trade route,” the Anaklia Development Consortium (ADC) is made up of the local Georgian investment group TBC Holding and the Conti Group, a 110 year old American engineering firm that has hundreds of large-scale international infrastructure projects in its portfolio. The consortium was assembled when the Anaklia port project became a realistic undertaking and the Georgian government began taking proposals.

In addition to the ADC, there were six other candidates competing for the tender for the Anaklia port project, of which one other finalist emerged: a Chinese-Georgian group backed by the state-owned PowerChina. As Anaklia port was set to be a key node in Beijing’s Belt and Road network and Georgia was one of the founding members of the China-led Asian Infrastructure Investment Bank, the Chinese group was favored to win the project up until the 11th hour when the Georgian government made a surprise decision and went with the American-Georgian consortium.

“I think we gave the government a more robust and broader vision to the project,” Akhvlediani said. “They were allocating a thousand hectares for the port. We will build the port on 400 hectares and then with the remaining 600 hectares we’ll build a free industrial zone, which was on top of what the government was expecting.”

Strange looking building built by the former president at the site of the impending Anaklia deep sea port. I was told that the consortium will use it as their on-site headquarters.
Image: Wade Shepard.

The total cost of the Anaklia deep sea port project will top $2.5 billion, plus another couple hundred million for the basic infrastructure for the free industrial zone. Of this amount, the Georgian government has offered 110 million dollars, with the rest coming from the consortium, who will have exclusive and irrevocable rights to the land for the next 49 years.

As with most projects along the New Silk Road, Anaklia Port is a long-term development project. According to Kodue, the window for construction and development is 25 to 40 years. By 2025, the port is expected to be handling 100 million tons of cargo and contributing 0.5% to Georgia’s GDP each year. However, the ADC expects to have the port’s 700,000 TEU, two-berth phase one completed within the next four years, whereupon ships will start coming in.

Surrounding the port area in Anaklia will be a 600 hectare free industrial zone (FIZ), which will offer a tax-free environment to manufacturing and logistics enterprises, who can carry out their operations cheaper and more efficiently right at their primary import/ export gateway. Ideally, the port and FIZ are expected to form a symbiotic relationship — manufacturers in the FIZ will receive supplies and export their products via the port and the port will receive additional cargo volumes from the companies in the FIZ.

“From doing a worldwide study, we found that proximity to a port is a key factor in the success of a free industrial zone,” Akhvlediani said.

Rural house on the site of what will become the Anaklia deep sea port and free industrial zone. This is a part of Georgia that’s mostly farms and small villages. Image: Wade Shepard.

This port project is set to fundamentally revolutionize Anaklia, serving as a catalyst to transform the place from a rural backwater to an epicenter of international trade and commerce.

“This area was covered by the forest, nothing was happening here,” Kodue told me. “I’m local; I’m living here. There was nothing, just cows and poor people.”

The Anaklia port will provide jobs for 8,000 workers directly and for multitudes more indirectly via companies who move in or start up because of the economic momentum the project creates.

“The other projects that are connected to the port are like a value chain,” Kodue explained. “When you are starting something big and something attractive indirectly it is attractive to other businesses.”

Using the port as a regional driver of development which could provide opportunities for people living in this relatively impoverished, formerly war-torn part of the country is a core part of Georgia’s intentions in Anaklia. As a part of the ADC’s agreement with the government, incentives for the local population, such as job training centers, are required.

“Hopefully, they get trained, gain employment, and have better lives,” Akhvlediani said.

But for the locals in Anaklia, the government promising them this game-changing economic catalyst is something they’ve all heard before. They have seen presidents coming in to get their pictures taken in front of grotesque monuments and talk about the port-to-be but never really saw much come of it on the ground.

“The government says they are building a port here. But they are always saying this,” the receptionist at the nearby Palm Beach Hotel said with a laugh.

But it all seems different this time around at Anaklia. A well-funded and capable group of investors have won the tender, and the wheels are starting to turn. A Dutch company is currently on site doing surveys and a platform from Istanbul is due for delivery any day now. The physical work is about to begin on the Anaklia deep sea port, as an expanse of cow pastures on the Black Sea is turned into the preeminent gateway of the South Caucasus region.

I’m the author of Ghost Cities of China. I’m currently traveling the New Silk Road doing research for a new book. Follow by RSS. I travel to emerging markets around Asia and report on what I find.