Saturday, December 29, 2012

The Impact of Odessa Sea Port on Agglomeration Tendencies in the City

The Impact of Odessa Sea Port on Agglomeration Tendencies in the City 

by Valeriia Sehstak

“The port is itself an existence of Odessa” Lanzheron A. (1763-1831) - former governor of Odessa, made the port of Odessa a free port (selling and storing imported goods with no customs duties) in 1819

The port of Odessa is one of the largest sea ports on the Black Sea and the Sea of Azov. It is considered to be the biggest passenger port on the Black Sea and a leader in cargo handling volumes among all of the 17 Ukrainian sea ports. The capacities of the port are such, that it can handle more than 21 million tones of dry and 25 million tons of bulk cargos every year. The passenger terminal is being used by roughly 4 million tourists annually. 

The port, stevedoring companies, other state and private companies related to the sea port activities, employ around 110,000 people. Given the aforementioned data, it is not hard to come to the conclusion that regional economics and the city prosperity and development are closely connected to this piece of infrastructure. This transport hub serves as a cluster of crewing agencies, logistic companies, building and wholesale trading firms, etc. In this regard one can see how the first nature conditions (the presence of the Black Sea) and the so called “one and a half geography” (meaning sea port as an infrastructure) can explain not only the fact that Odessa is one of the most developed cities in the whole country, but even agglomeration processes occurring throughout the whole history of the city, leading to the fact that Odessa became the regional center with more than 1,4 million people population of various nationalities and backgrounds.

The presence of port contributed to relatively high wages in the city, even despite the fact that Odessa is not the capital city of Ukraine. According to the data released in the end of 2011, the city not only has the lowest level of unemployment along with Kiev, but also has the highest level of relative wages if to compare with the cities similar population wise. Those effects can be partially explained by the presence of the sea port and high local market potential. However, here not only the local market matters. The city itself and the port have a rather crucial strategic location, as via using the port infrastructure and capacities, the region and the country itself are able to trade with 100 countries worldwide because of the transport lines that are eventually connected to 600 ports. The port also services ferries directly connecting the region with Greece and Turkey, two countries that also have a large market potential and have a spillover effect on the development of Odessa region.

However, I would argue that despite all of the benefits that the region gets from this piece of infrastructure and the market potential effect, the pace of development that can be extracted from this is far from its limit. The port cannot handle the economies of scale that arises with the development of shipping industry and especially a very rapid and far going growth from the Turkish side. Thus, major changes are desperately needed in order to benefit from the opportunities that globalization along with the extensive trading can give to the region and eventually the country itself.

One of the possible ways out has been presented by the U.S. Agency on international development, when the Plan for potential development of industrial zones and logistics territories has been introduced in 2011 and is supposed to be fully implemented by 2025. According to this development plan not only the capacity of the port will be considerably increased, but also a lot of industries and logistics companies will be established due to the port territory enlargement. The project will also require building new highways and roads and will create a lot of transportation hubs. The conceptual scheme of the whole enlarged area being under development can be seen on the picture below.

*The area that is currently being used is marked with orange circles; the rest should be built according to the 2011 Plan for potential development of industrial zones and logistics territories by the year 2025.

Thus, the enlargement of Odessa Sea Port will not only create enhanced clustering of the logistics and industrial firms nearby the port facilities, but will also enhance international trading in the region and create a basis for growing number of intermediate industries that will arise immediately after the port will obtain a bigger scale (such as maritime agencies, financial firms, etc.). According to the plan described above, the area will also have some space for non-commercial real estate, hence, enlargement of the facility will lead to the concentration of both enterprises and people in the area.

The benefits of such a development plan are clear when one refers to the New Economic Geography model, where larger scale and lower in costs trading in the sea port zone under development will lead to agglomeration tendencies. The city itself will also benefit and attract more firms and labor force; however, one should also take into account whether the activities of local authorities will be beneficial in terms of favorable business environment in the region.


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