From scattered projects to value creation network

Iranian economy:

This question clarifies the difference between “crossing the border” and “creating value in the border economy”. Increasing the capacity of the road, terminal, warehouse or unloading and loading area can be a necessary condition for development; But it alone does not guarantee that the investment will lead to an increase in income, sustainable employment and economic activity in the region. The main problem is not to underestimate the importance of infrastructure; The problem is the project-oriented view of development. Each project may have a technical justification on its own, but if its relationship with real demand, transportation network, manufacturing companies, destination markets and complementary services is not clear, the totality of projects will not necessarily turn into an efficient economic system. In such a situation, the question of development should be changed: instead of just asking what infrastructure should be built, we should know which economic flow this infrastructure serves, which link of the value chain it completes, and what share of the created value can remain in the region.

infrastructure; A prerequisite, not a guarantee of success

The development of border and logistics infrastructure is necessary to facilitate trade, reduce transaction costs and increase the reliability of transport routes. However, the efficiency of the infrastructure becomes meaningful when it matches the real needs of the economy and the mechanism of its exploitation. For example, building a warehouse without knowing the type of product, seasonal demand pattern, potential customers and access to the distribution network may create unused capacity. Increasing the capacity of a terminal, if it is not accompanied by the correction of administrative processes, coordination of devices and management of arrival and departure flow, does not necessarily lead to a reduction in stop time or transportation cost. In the national land development document, it is emphasized on strengthening the connection of border cities with markets and distribution centers, development of communication infrastructure of border points, creation and development of logistics centers and integrated management of border points. This orientation shows that the territorial development policy does not see the border separately from the transportation network and economic activity inside the country. Therefore, the evaluation of each project should include at least three levels: first, necessity and technical justification; Second, the possibility of economic exploitation and the existence of demand, and third, its effect on the performance of the network and the economy of the region. A project that is successful at the first level will not necessarily be successful at the next two levels.

boyish Where economic value is created

The border is the junction of internal and external networks; But an important part of the economic value of trade is formed in the activities that are carried out before, during or after the passage of goods. Warehousing, packaging, cargo consolidation and segregation, fleet maintenance, financial and insurance services, supply chain management, processing and distribution are examples of these activities. The set of zones and economic activities connected to a border gate, in the literature of transportation and regional development, can be looked at from a “boyish” perspective; That is, the space that links the transit capacity to services, production and market. Peskraneh is not just a geographical area behind the border; It is a network of suppliers, companies, service centers, communication routes and destination markets. The report of the United Nations Economic and Social Commission for Asia and the Pacific about dry ports emphasizes the necessity of planning and operating these centers in connection with transportation networks and commercial needs. The applicable message for Iran’s border areas is that the logistics center should not be considered an independent project; Its performance depends on its connection to the network it is supposed to serve.

From this point of view, the development of the village should not be limited to the construction of a warehouse or an area. Before making a decision, it should be clear what services are lacking in the region, what group of companies will be the customers of those services, where the goods come from and where they go, and which activities have the possibility of economic establishment. This logic is also important in West Azerbaijan. The capacity of a border crossing is better connected to the economy of the region when its connection with service centers, access routes, production companies, storage and distribution facilities and destination markets are designed. This relationship should be based on the study of actual flows, not merely on the basis of geographical proximity or general perception of the area’s capacity.

managerial experience; The gap between creating capacity and creating value

In management experience in industrial, commercial and organizational fields, one of the important issues in development decisions is the gap between capacity building and its effective use. Building capacity is usually visible in the form of projects, credits, buildings or equipment; But the effective use of capacity depends on demand, skill, organization, communication between companies and management quality. This difference also exists in the development of borders. A region may have the right road, usable land or border access, but until the business model, customer, complementary services and its link with the market are defined, these capacities cannot be expected to create sustainable value. As a result, the evaluation of frontier projects should not be done only with indicators such as the amount of physical progress, credit spent or nominal capacity. These indicators are necessary, but not sufficient.

Along with them, one should ask: How much of the created capacity is actually used? What cost has been removed from the transport chain? What services have been formed in the region? How many companies are connected to the network? And how much new economic activity can be expected, with what quality and in what horizon? These questions help to distinguish between “project output” and “economic result”. Building a logistics center is an output; Its continuous and economical use is the result that should be measured.

West Azerbaijan; From the list of projects to the network logic

West Azerbaijan has the capacity to play a role in regional trade and transportation networks due to its border location, connection with several countries, and various crossings and communication routes. But taking advantage of this situation does not mean implementing similar projects in all places; Rather, it is necessary to understand the role of each crossing, the economic needs around it and its connection with other components of the network. Bazargan, Razi and Saro, each of them operate in their geographical context, business relations and operational conditions. Along with them, the idea of ​​developing border capacities in Selmas (Kozeresh) should also be evaluated by examining the legal, infrastructural, commercial and economic requirements; Not that simply by opening a path, its economic result is assumed to be predetermined. Likewise, Mako Free Zone can be a part of this network if it is effectively connected to trade, service and investment flows; But the institutional title or geographical location alone does not guarantee such a role.

The guiding principle should be the division of complementary work. Each crossing can have its own functions and capacities; Each city can provide part of the services or activities required by the network; And each project must be defined in relation to this division of labor. Such an approach does not mean ranking areas or crossings, but means designing the connection between them. The national document of land preparation emphasizes the continuity of the transportation and logistics network, the connection of border gates to the territory and the creation of logistics centers appropriate to the establishment of activities. Accordingly, planning for the development of the province should go beyond a list of individual projects and reach a map of the flow of goods, services, production, infrastructure and market. In this map, it is necessary to specify for each project which stream it serves, which infrastructure or economic activity it is related to, which dependencies it has with other projects, and which institution is responsible for coordinating and exploiting it. If these connections are not clear, projects may be located next to each other, but in practice operate in isolation.

Data is required before investing

Making decisions about border infrastructure development without knowing the actual flow of goods and services can lead to unrealistic estimates of demand. The number of trucks or the volume of goods crossing alone does not provide a complete picture of the economic performance of a border. The type of goods, origin and destination, direction of movement, peak demand seasons, stop time, direct and indirect costs, local service utilization rate and cargo return capacity should also be checked. For example, increased traffic becomes an economic advantage when it is accompanied by acceptable cost and time, predictability, required services and stable demand. If the fleet cannot find suitable return cargo after unloading, if the administrative procedures have an uncertain time, or if the necessary services are not available en route, the increase in traffic volume may not be accompanied by a commensurate increase in local added value.

The report of the Organization for Economic Cooperation and Development about the Middle Corridor shows that investment in infrastructure alone is not enough to remove obstacles to the functioning of a corridor; Trade facilitation, inter-institutional coordination, transit time predictability and regional economic links are also important. This report is related to the Middle Corridor countries and its findings cannot be generalized to West Azerbaijan without study. However, its analytical framework notes that infrastructure should be examined alongside demand, enforcement rules, and institutional coordination. Therefore, before the approval or development of any project, it is necessary to prepare an economic and operational file. This file should at least include data on the flow of goods and fleet, estimation of current and future demand, potential customers, operating costs, additional services required, environmental and social effects, and demand change scenarios. In projects where there is insufficient data, it is better to phase the investment decision and to depend on the results of monitoring and evidence of demand for capacity development.

governance; Link connecting infrastructure and economy

Networking of projects is not achieved simply by placing them in a common map or document. A mechanism is needed to coordinate the responsible institutions, the private sector, local institutions and service providers around clear goals. This is the point where the topic changes from managing a single project to network governance. The report of the Research Center of the Islamic Council on the evaluation of the performance of the 7th Progress Program in the area of ​​transit and sea-based economy, points out challenges such as the lack of clear instructions for the establishment and interaction of devices at border terminals, the conflict of sectoral policies and weak coordination. This report shows that the issue of border performance is not only limited to physical capacity; The rules of interaction and responsibility of devices can also affect productivity. For West Azerbaijan, one of the practical steps can be to create a joint monitoring mechanism for border projects and flows; A mechanism that, instead of focusing only on the physical progress report, also examines the economic and operational results. In this mechanism, four questions must be clear for each action: What is the problem? What is the required decision? Who is responsible for implementation? And when will the result be measured by what index?

Monitoring indicators should also be selected according to the project’s purpose. The stop and clearance time, the ability to predict the transit time, the cost of logistics services, the amount of use of the created capacity, the number of companies connected to the network and the share of services and economic activities based in the region, can be part of this collection. The selection of indicators should be based on available data and a clear baseline; Otherwise, the assessment will become a set of numbers with no valid comparison possible. The role of the private sector should not be limited to the exploitation phase. Transport operators, traders, manufacturers, service companies and investors have information about demand, costs and implementation barriers that can prevent ineffective decisions during the project design phase. Of course, their participation does not replace the government’s responsibility in regulating and providing public benefits; Rather, it is a way to bring policy design closer to market reality.

summary; From project to result

The economic development of border areas is not measured by the number of projects or the nominal capacity of infrastructure; The main criterion is the performance that these capacities create in the economic network. The road, terminal, warehouse and logistics center become an advantage when they are connected to the real flow of goods, services, production, investment and market. For West Azerbaijan, this approach requires three changes in the decision-making method: first, moving from defining the project based on apparent capacities to defining it based on the problem and real demand; Second, passing the single view of the crossings and cities and designing a complementary division of labor between them, and third, replacing the purely physical assessment with the monitoring of economic and operational results.

In this framework, every project must answer a clear question before implementation: what problem will it solve and how will it help to create value? The answer to this question requires reliable data, participation of the private sector, coordination of devices and accountability in implementation. The goal is not just to get more trucks across the border; Its goal is that the flow of trade, along with fulfilling its transit mission, creates more opportunities for the formation of services, business activities, employment and sustainable economic links in the region. Development passes the project level when the infrastructural, institutional and economic components work in an efficient network; A network whose success is measured not by the number of projects opened, but by the results it produces in the real economy.

Reza Rahmani / analyst in the field of industrial and commercial management and policy