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"He would give him a white elephant which would ruin the unfortunate official due to the necessity of feeding the animal".

White Elephants on the Silk Road

The ruler of Siam (that is the king of ancient Thailand) could make, when falling into a bad mood, a “royal present” to his courtier: he would give him a white elephant which would ruin the unfortunate official due to the necessity of feeding the animal.

It was not possible of making the sacred animal do any work, while the albino elephant required a lot of food, since it had to be constantly well-fed with varied fodder. One can find many of such ”white elephants” when reviewing the economy of many countries.

They are insanely expensive projects and infrastructure facilities that did not find any use: empty airports and railway stations, unused stadiums, or factories and plants that were abandoned due to absence of demand for their production. There are examples of this in any countries, especially in those where the role of the state in the economy is too big: in China and Brazil, in North Korea and Venezuela plus in many other countries around the world.

Soviet Union with its planned economy was especially noted for creating such “white elephants”: their skeletons can still be seen both around Georgia and throughout all of the post-Soviet space. Russian economy continues these “great” Soviet traditions: its expenses for all kinds of championships and Olympics, monumental bridges and other facilities are, as a rule, as enormous as economically not feasible. Only the Olympic Games in Sochi cost Russia around 1.5 trillion rubles (25 billions of US dollars), which made it the most expensive Olympiad in the sports history of the mankind.

98% of the funds were spent for construction, but most of the construction estimates grew significantly larger than expected due to traditionally poorly detailed project documentation. As a result, some half a dozen of the largest Russian construction companies went bankrupt right after the Olympics.

It is hardly likely that small Georgia should start creating its own “white elephants”, even if their scope is a hundred times smaller.

Still, one can locate them looking at the economic map of the country. For example, a large slaughtering plant in Natakhtari with a capacity of 200 cattle per day has not been operating for several months now. With its modern equipment and latest technology it could handle up to 200 cows daily, but there are at best only 5 cows per day available for processing…

It is cheaper not to run the slaughterhouse at all than to suffer losses due to such low processing volumes. Attempts were made to import cows from abroad in order to export the products later on, but this scheme proved unprofitable, too. No one can tell when the investment can start bringing profit.

There is a large refrigerator in Natakhtari featuring the deep-frieze facility, but it does not have incoming initial raw materials either. There are no products to put into this refrigerator facility, so it is not in operation. In Poti, there exists a refrigerator plant which has not been operating for years now.

It is easy to continue the list of such examples. The reasons for this situation are as follows: poor preliminary analysis, lack of project marketing or its insufficient handling, lack of knowledge about the local raw material basis, about export possibilities for the products, about international markets and about one’s competition.

The above examples, however, had cost only millions or, at a maximum, tens of millions of dollars. They are only “white baby elephants”… Which is not the case of port Anaklia with its 5 billion US dollars of investment. It is known that in recent years the cargo traffic through the port of Poti, especially container traffic, was constantly declining by approximately 20% per year.

This is, of course, the result of the current crisis in the neighboring countries, and the situation may improve in the future. I am very concerned whether Anaklia may become a Georgian “white elephant”.

It would seem that developing the existing, effectively operating port of Poti which is currently underutilized would have been a better solution. Especially since its operator, APMTerminals, was ready to invest about $250 millions in the expansion of the port capacities—that is, before the Anaklia project was launched.

250 million is not 5 billion after all, plus the fact that the deadlines for putting the facility into operation would have been, to put it mildly, quite different. My potential opponents should know in advance that I am not against the development of the transportation infrastructure or the construction of a deep-water port or, let us say, the railway connecting Baku, Tbilisi and Kars.

I am very concerned about them, however, perhaps due to lacking enough information, because I do not know whether any professional did calculate the volumes of cargo going to and from the port of Anaklia for it to be profitable–from which countries would that cargo arrive and to which destinations it would be sent?

As per cargo transshipment at Anaklia, it should be known which other Silk Road routes it would compete with? The Baku-Tbilisi-Kars railway must by definition take away the cargo flow from the Georgian Black Sea ports, because containers from Europe to Middle and Central Asia will be transported via the rail route, directly, without any expensive transshipment operations. Plus there are alternative routes, too. I keep genuinely admiring China’s geopolitical and economic strategy, its “soft power” in creating the Silk Road project. This is what happens: the Chinese lobby and finance simultaneous construction of several routes via many countries in Asia and Europe, and thus they include them into the orbit of their influence.

This is not a philanthropic enterprise because credits will have to be paid back, sooner or later. The construction itself is done pretty often by Chinese companies which get in this way very large and stable contracts. In the end, there will be several transportation routes from China to Europe that would be competing with each other and, possibly, dumping transportation fees in their struggle for cargo volumes.

Thus the Chinese will be profiting again in this case, due to the lowering of their transportation expenses. There is never enough money, not enough investment for projects. Especially in Georgia. The main issue is not whether to develop or not to develop infrastructure projects, but which should be done first. How to prioritize them. My personal conviction is that Georgian interests lie much more not in directing investment to Anaklia as a first choice, but in modernizing and widening the Georgian Military Road.

I know from own experience how high are the losses of Georgian businesses (and, respectively, the Georgian state) because of its irregular operation. Several times around the year the Upper Lars custom and crossing point is shut down due to poor weather conditions, and it can stay closed not for days but for weeks on end!

As a result, Georgian exports of perishable peaches and nectarines decline drastically, as was the case last summer, and in winter the same happens to tangerine shipments. Transportation to Russia over this route is stopped, so the traffic of goods goes via Azerbaijan, which makes the Georgian export products much more expensive. If the Georgian Military Road were modernized and overhauled, both Georgian budget and Georgian businesses would immediately experience a very positive change.

On the other hand, small-scale, but numerous investment projects into the correctly pinpointed market niches existing in the sphere of tourism and agriculture are always much more effective from the point of view of profitability as compared to gigantic projects. My last comment is somewhat beyond the topic, perhaps. I read recently, with quite a shudder, that POSCO, a South Korean company, is making plans for building an ultra-modern iron and steel plant in Georgia, with the annual capacity of 1 million tons of steel, expecting to invest half a billion US dollars per year. I do not know any details, but I do not know of any convincing arguments for such a project in Georgia. This is, of course, not a “white elephant”: this plant will most certainly be profitable since it the Koreans who would be developing the project.

They are great in their economic activities, just as are the Chinese. In the 1960s and the 1970s the Republic of Korea did create its powerful steel industry within the framework of their strategy for phasing out imports.

They did that with a major state support and they have been operating using imported raw materials. They are now among the five largest steel producers in the world. Which means that the time has come to take abroad such plants that harm their environment. But why move them to my small and beautiful Georgia? This country is, in my opinion, a boutique, in the economic respect, so everything here must be small, unique and environmentally friendly.

By Dr. Andrei Maximov