Russia Copies China’s Belt & Road Initiative By Financing & Upgrading Cuba’s National Railway System

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Op/Ed by Chris Devonshire-Ellis

Russia has taken a leaf out of China’s largesse with its Belt & Road Initiative, by agreeing with its long time ally Cuba to provide finance, machinery and engineering to upgrade the creaking Cuban national railway system. China has also been partnering with countries around the globe in helping upgrade and rebuilding archaic or financing new infrastructure developments, including in Cuba and the Caribbean Islands.

Cuban Union Railways (UFC) signed a contract worth around US$54 million with RM Rail, Russia, for 837 freight wagons at the Havana trade fair in November last year, the order comprising of seven different types of wagons, including for cement and sugar cane which have been specially designed for operation in tropical conditions. The deal was financed with a loan from the Russian government.

This has been followed up with a much larger investment of about US$1 billion, with an inter-government agreement signed at the recent St. Petersburg International Economic Forum. This investment will construct a rail freight station in Matanzas, on the north coast close to Florida (US) and the Bahamas islands. This will result in the first new rail freight station after having opened one in the Special Industrial Zone of Mariel, 45 km from Havana. This area will become a complementary logistics hub to Havana, with a new port and rail and road connections and will be built with Russian funding and support from Russian railway and construction engineers.

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Emilio Esposito, the Deputy Director of the UFC said that in future, Cuban rail will become the principal way of moving freight and passengers safely around the country taking pressure off the road infrastructure. To achieve this and to increase freight and passenger services, the UFC intends replacing equipment, repairing lines and workshops, and improving the comfort for passengers. An objective is that by 2022 the amount of freight transported will increase to 22.3m tons. At present the largest volumes of rail freight are related to sugar cane and its derivatives, fuel, construction materials, and food as well as containers, but it is intended that links to the Mariel Special Development Zone and the soon to be opened upgraded port at Santiago will see significant use of rail to move containers around the country.

The volume of Cuban container operations is expected to grow by 26% largely due to the opening of an inland port in Matanzas, as part of a study prepared for the Cuban Ministry of Economy and Planning indicating that new investments will be required for the handling and storage of merchandise at inland container terminals and for the introduction of ‘modern technologies (to) reduce the time of rotation in railway equipment and improve the working conditions of staff’. It also noted the need to improve the efficiency of the logistics chain from the port to end users.

When it comes to passenger transportation, the UFC’s objective is to triple this by 2022. Cuba’s transport services will be divided into two categories: long distance, using a national train service, while for short distances there will be an inter-territorial and local network. In the case of the latter, a project is already underway that aims to guarantee rail transport to remote and rural populations utilizing light motorized carriages.

Russia’s moves to assist finance and develop infrastructure in other countries is exactly the same model as China’s Belt & Road Initiative, only perhaps rather more selective. It has also, like China, been developing free trade and special economic zones in other countries. One example is the Free Trade Zone being built in Egypt’s Port Said, near the Suez canal.

Russia certainly has the capabilities to export finance, equipment and expertise, and it is to be expected that it will also partner with China and other countries such as India on cross-border infrastructure development contracts on a G2G and B2B basis in the coming years. It is an area of project and investment financing worth looking into as opportunities for Russia to invest both its sovereign and privately held wealth arrive.

 

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Russia Briefing is produced by Dezan Shira & Associates. The firm advises international businesses on investing, setting up businesses and administering them throughout the Eurasian region, including Russia, China, India & ASEAN, and maintains offices and partners in each of these countries and regions. For assistance with investing in Russia, or for Russian businesses wishing to invest in Asia, please contact Maria Kotova at maria.kotova@dezshira.com or visit us at www.dezshira.com.

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