Belt & Road Initiative Injects Vitality Into Economies

By Asit Biswas, Cecilia Tortajada 15 November, 2018

Biswas & Tortajada from the National University of Singapore explore how China's Belt & Road Initiative can benefit developing countries in Asia & Africa

This article was originally published in China Daily on August 7, 2018. Click here to access to the original article.

Covering at least 65 countries in Asia, Europe and Africa, 63 percent of the world population and about 30 percent of global GDP, the Silk Road Economic Belt and 21^st Century Maritime Silk Road will further facilitate the access to goods and services for the rising number of middle-class families with steadily increasing incomes in developing countries.

In other words, the Belt and Road Initiative will promote connectivity between and within countries by building and strengthening infrastructure along the two routes, in order to facilitate trade.

China could put up to USD1trn in the Belt & Road Initiative

China is backing the Belt and Road Initiative with substantial funds, including USD40bn from the New Silk Road Fund, USD900bn from the China Development Bank, and a significant portion of USD100bn available from the Asian Infrastructure Investment Bank. The Economist has estimated China could put up to USD1trn in the Belt and Road Initiative.

China can help fill the investment gap in Asia

Developing countries in both Africa and Asia need huge sums to fund their development projects. With a rapidly expanding population, steady growth of the middle class and rising expectations of the people, there is a strong demand for not only new infrastructure projects but also proper operation and maintenance of the existing ones.

Est. that developing Asia will require USD1.7trn/year to meet infrastructure needs…

 

…the gap between required & current investments is est. to be 2.4% of the region’s projected GDP between 2016-2020

Last year, the Asian Development Bank estimated that developing Asia will require USD1.7trn a year until 2030 to meet its infrastructure needs in transportation, power generation, telecommunications, and water supply and sanitation.

Developing countries in Asia are now investing about USD881bn a year in infrastructure. The gap between investments required and current investment levels is estimated to be 2.4 percent of the projected GDP of the region between 2016 and 2020. If China is excluded from this estimate, the investment gap more than doubles to 5 percent of the projected GDP of the rest of Asia’s developing countries.

China has already provided significant help for improving connectivity and developing infrastructure in countries along the Belt and Road. In Africa, for example, China has helped build the Addis Ababa-Djibouti Railway. This 759-kilometre railway, which began operation on Oct 5, 2016, connects landlocked Ethiopia with Djibouti and hence with maritime trade routes of the Red Sea and Gulf of Aden.

China’s development role in Africa is crystal clear

Similarly, the Madaraka Express, connecting the Kenyan port of Mombasa with Nairobi, was opened on May 30 last year. The 489-km railway is being extended to Naivasha in northwest Kenya, and there are plans to extend it further to Uganda, Tanzania, Rwanda and Burundi and, perhaps later, to South Sudan and Ethiopia. The Madaraka Express has reduced rail travel time between Kenya’s two most important cities from 12 hours to only 4.5 hours. And train tickets cost less than that for a bus journey, which takes about 9 hours. Equally important, the earlier freight cost per container of USD960 has reduced by half. The railway is also fostering economic development around the stations in terms of real estate, commercial and industrial parks, factories, logistics, and tourism, which in turn are creating additional jobs.

To ensure the smooth operation of the Addis Ababa-Djibouti Railway, the three countries have adopted a 6+2 model

To ensure the smooth operation of the Addis Ababa-Djibouti Railway, the three countries have adopted a 6+2 model, meaning China will operate it for six years, and provide technical assistance for another two years. Similarly, for the Mombasa-Nairobi Railway, a 5+5 model has been adopted. And for both railways, China is training local employees who can gradually take over the operational responsibilities from their Chinese counterparts. A technology transfer, too, is part of the deal.

Initiative will ultimately progress smoothly

Since many countries and observers consider the Belt and Road Initiative a geopolitical strategy aimed at enhancing China’s global standing, it has often faced criticisms and resistance. But once the world, especially the countries along the Belt and Road, realise China has no hidden agenda or ulterior motive, the initiative will progress more smoothly to fulfil its potential of benefiting not only China but all the countries along the two routes.

The projects, however, have to be cost-effective, because the countries taking massive loans from China for infrastructure development should be able to pay them back. For example, Ethiopia and Djibouti have purchased credit guarantee insurance for their loans of about USD4bn. And Kenya is confident the new railway will add 1.5 percent to its GDP every year, and hence it should be able to pay back the loan with the revenue from passenger fare and freights charges in only four years. In fact, Kenya is so confident of the cost-effectiveness of the railway that it took another loan, of USD1.5bn, from China in December 2015 to extend the railway to Naivasha.

If things go according to Kenya’s plans, which seem likely, it will certainly be win-win for China and Kenya. And that in turn will add to the global acceptability of the Belt and Road Initiative.

Further Reading

• Have Investors Incorporated Climate Risks Into Portfolios? – Hear from WWF HK’s Jean-Marc Champagne & Sam Hilton on their new report that introduces climate change & financial risks to institutional investors, focusing APAC & the energy sector
• Upgraded Water Risk Filter: From Assessment To Response – WWF’s Water Risk Filter has been upgraded, from expanded data sets & climate change projections to new response & valuation sections. Their Ariane Laporte-Bisquit highlights everything new
• Dell’s Water Stewardship – Dell is not only reducing water use in its supply chain but also managing water as a shared resource at a watershed level through water stewardship. Find out more from their Jason Ho
• Big Data Accelerates The Expansion Of Green Supply Chains – Check out which brands are leading on green supply chains in China as IPE’s Erin Wong & Helen Ding share results from the 5th CITI report, which also includes a new GHG emissions index
• APAN Climate Adaptation Forum: 3 Takeaways – As climate adaptation conversations becomes mainstream, the focus is now to accelerate actions. China Water Risk’s Feng Hu shares key takeaways from the Asia Pacific Climate Change Adaptation Forum

• China Steps Into Soft Power Vacuum – As the US retreats, Asit Biswas and Cecilia Tortajada explore how China is becoming the world’s leading soft power, from infrastructural development to research progress, and hurdles it faces ahead
• China’s Green Planning For The World Starts With Infrastructure – China can exert greater external influence through infrastructure development but Professor Asit K Biswas and Kris Hartley from the Lee Kuan Yew School for Public Policy caution against it citing financial and environmental risks. See more
• 5 Trends For China Green Finance – Stay on top of China’s green finance trends & opportunities with China Water Risk YuanChao Xu’s 5 key takeaways from China’s Green Finance Committee Annual Conference. From mandatory disclosure to ERA and One Belt, One Road to green buildings
• Made in China 2025: Are You On The List? – How does the new Made in China 2025 Action Plan fit with other ‘Future China’ plans? Are the ten industries in Made in China 2025 the same as the Circular Economy Ten? Find out why which list matters