Thursday, December 31, 2009

The New Silk Road

An old history of trade that dates back to more than 3,000 years ago is revitalized today by a new stream of goods, commodities and money invested in energy, infrastructure and manufacturing projects.

While the first person who used the term "Seidenstra├če", literally "Silk Road", was the German geographer Ferdinand von Richthofen in 1877, the Silk Road (or Roads, as it appears that we are actually talking about a whole network of routes and not just one road) dates back to the 5th century BC. These routes, extending more than 4,000 miles, have represented important paths, through which ideas and inventions, as well as goods and also diseases , spread from China to India & South East Asia, the Middle East and the larger Mediterranean.

Furthermore, while their relative importance is cause of debate, all scholars agree that the exchange of ideas, traditions and goods moving across the Silk Roads fast tracked the flourishing of the complex civilizations of China, Persia, India, Egypt, Arabia and Rome and, in several ways, helped lay the foundations of the modern world.

Over the centuries, the roads evolved, and new routes were added, especially when naval travel became more and more important.

Map information

This map indicates trading routes, used around the 1st century CE, centred on the Silk Road. These routes are largely valid for the period 500 BCE to 500 CE. [i]

The importance of the Silk Roads became less and less relevant as the world’s economic centre shifted westward, with the rising importance of the Americas, especially North America.

However, a new revival of commerce and investment has been in progress for the past 15 years and accelerating its pace tremendously since the beginning of the new century.

A few variables have contributed to the renewed importance of the New Silk Road: the growing importance of China as the heart of global manufacturing, the tragic September 11 2001 events, the rise of Indian economy, the uncontrolled expansion of credit in the Western societies, the available liquidity among GCC countries, and last but not least the long term demographic trends in the so called G7++ countries. [ii]

The current economic uncertainties haven’t been able to reverse well settled trends. Commerce between Asia and Middle East has been growing at a staggering rate of 30% a year. Since 2006, Asia has been the largest trading partner of the Gulf Cooperation Council, and as of 2007, Asia accounted for 55% of the total $758 billion in trade. [iii]

Further examples of how countries have become interconnected can be seen in the desire of GCC countries to play a permanent role in the development of the natural trading partners surrounding them. Khalid Al-Muhairy left his post, as fund manager at Abu Dhabi Investment Authority, to set up his own asset management fund, Evolvence, solely focused on India. The fund, which is now worth $400 million, has successfully funded Indian businesses in construction (Chennai), high tech pharmaceuticals in Hyderabad, and a private cancer-treatment centre run by US trained doctors in Bangalore.

Smaller Moroccan and Algerian companies have manufacturing facilities in China for shoes, toys, garments and more. The wholesale market of Yiwu in South-eastern China has become the centre of commerce for many Middle Eastern traders to the extent that city administration has built Mosques to accommodate the needs of Muslim travellers and residents, and road signs have been posted in Arabic as well as Chinese and English.

As Western economies tend to present less and less appeal, the large GCC sovereign funds are evaluating investment opportunities in Asia. ADIA (Abu Dhabi Investment Authority) aims to have 8% to 12% of its total fund value invested in Asia.

Conversely, to witness the fact that the ties developed are mutual, Asian companies are building more and more of a presence in the Middle East as well. China has invested billions of dollars in the oil sector in Africa, especially in Algeria and Sudan and state-owned and private Chinese construction companies are now executing infrastructure work (roads, bridges, etc.) across the entire GCC and Africa.

China’s exports to Egypt have quadrupled since 2003, roughly 18 times the value of Egyptian exports to China. The Egyptian government is trying hard to make Egypt the destination of Chinese investment to compensate for the balance. The aspiration is to have Egypt as an export hub for Chinese companies. North East of Cairo, TEDA, a development agency based off the port of Tianjin is building a manufacturing zone. The objective is to attract large Chinese companies to be able to employ 10,000 Egyptians and 1,000 Chinese employees.

HSBC has recently decided to move its principal office from London to Hong Kong, a move that underlines the importance of Hong Kong as a key global financial centre. More recently Abdualla Al Awar, CEO of the DIFC Authority, has declared to .Commerce publication: “…we’ve seen the investment flows have shifted recently. In the past three years there’s been a west to east flow of investments, but maybe that position is changing now. We’ve seen more interest coming from the East Asian market and from within the region. If, for example, someone wants to access Africa, they will use Dubai. The flows are more East to East now – east to the Middle East, and the reverse.”[iv]

More and more examples can be found in newspapers, consulting papers, and so forth. The evidence of a New and powerful Silk Road is everywhere.

The camels of the old paths carrying precious stones and carpets have been substituted by oil tankers, large Airbuses landing in billion dollar airport hubs, and wire transfers. As the West grapples with fixing structural problems, the New Silk Road can prove to be the fertile ground for a new economic revival.

New economies, rich in resources, are going to play a role as well: Kazakhstan, Uzbekistan, and Tajikistan are all looking at opportunities to develop new ties and relationships within the region.

Furthermore, as common interests grow and countries become more and more interdependent we will be able to avert the risk of political destabilization.

It is within the parameters of this quickly evolving environment, that agents of economic development, such as free zones, become more and more relevant, as they provide the perfect vehicle for companies to expand their reach and take full advantage of the New Silk Road which has emerged.

Image: courtesy of Business Week Online

[i] Wood, Francis (2002). The Silk Road: Two Thousand Years in the Heart of Asia. Berkeley, CA: University of California Press. pp. 9, 13–23. ISBN 978-0-520-24340-8.

[ii] Geographical labels for regions are adapted from the Geography of Ptolemy (c. 150 CE), some trading centre names date from later (c. 400 CE). Relying on Ptolemy's names is wrong but neutral. The following contemporary trading centres (or possible trading centres) are not marked: Red Sea - Myos Hormos, Berenica, Ptolemais Theron, Adulis, Muza, Ocalis, Aualites, Malao. Arabia - [South] Saue, Sana, Saphar, Eudaemon Arabia, Cane, Mosyllon, Moscha. Persian Gulf - Asabon, Charax, Gerra, Ommana, Apologos. Persia - Persepolis, Alexandria Areion, Kandahar. Africa - [East Africa/Kush/Axum] Coloe, Axum, Akhmim, Panopolis, Aromaton Emporion, Opone, Sarapion, Dongola. [Mediterranean] Cyrene, Leptis Magna, Carthage, Caesarea, [Beyond map] [East Africa] Juba, Maji, Sennar, [Trans-Saharan] Sijilmassa, Tamanrasset, Murzuk, Tingis. Europe - Gades (Cadiz), Augusta Treverorum (Trier), Aquileia, Ostia, Athens. India - [Arabian Sea] Horaia, Barbaricum, Barake, Astakapra, Suppara, Kalliena, Semylla, Mandagora, Palaepatmae, Melizeigara, Erannoboas, Byzantion, Naura, Tymdis, [Central] Paethana, Tagara, [South] Muziris, Nelcynda, Bacare, Balita, Colchi, Palaesimundu, [East] Argaru, Poduca, Sopatma. Silk Road - Ecbatana, Yarkand, Jiaohei, Kitai, Kaifeng. (Note - both summer and winter routes around the Takla Makan are shown). China - Chengdu, Kunming, Cattgara. South East Asia - Trang, Thaton. The routes between most of these unindicated sites are not marked, notably the extensive European/Roman routes and the other routes in Persia beyond the Silk Road. Another route not indicated is the Scythian route running from China to the Black Sea. The large number not marked on India are the minor sites listed in the Periplus of the Erythraean Sea.
[iii] See previous article for additional relevant information.
[v] .Commerce Middle East Business Analysis, Issue 35,  November 2009. Pp. 25.


  1. Article provides interesting insight into retrospective analysis of interregional economic development versus current trends, finding lots of similarities as well as highlithting the importance of emerging economic centers and free zones. It is actually quite exciting that we are located in a region where the new history is being shaped. Waiting for more articles from the author.

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