The why and how of BRI

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M Ziauddin

China’s Belt and Road initiative launched in 2013 to improve connectivity and cooperation on a trans continental scale has two components: The Silk Road Economic Belt (the “Belt”) and the New Maritime Silk Road (the “Road”). The overland “Belt” links China to Central and South Asia and onward to Europe. The maritime “Road” links China to the nations of South East Asia, the Gulf countries, East and North Africa, and on to Europe. The Initiative is made up of six overland economic corridors: The China–Mongolia–Russia Economic Corridor, the New Eurasian Land Bridge, the China– Central Asia–West Asia Economic Corridor, the China–Indochina Peninsula Economic Corridor, the China–Pakistan Economic Corridor, and the Bangladesh–China–India– Myanmar Economic Corridor. The Initiative comprises essentially transport corridors and has been launched with the sole purpose of substantially improving trade, foreign investment, and living conditions for citizens in participating countries.
New infrastructure that would come up as the BRI initiative enters its top gear is expected to help close gaps that currently deny global connectivity. When completed the BRI is expected to reduce travel times by one day resulting in the increase of BRI trade by 5.2 percent. According to World Bank experts, international cooperation to improve connectivity makes economic sense. Building a railway or a road has value for any country—but it also has spillover benefits to the countries around it. Cross-border cooperation can further enhance the value of a country’s investments—by adopting harmonized standards for infrastructure.
The cost of BRI transport projects in the 70 corridor economies (excluding China) is estimated to range between US$144 billion and US$304 billion. Estimated BRI investment including projects in all sectors, including energy, is worth US$575 billion.
BRI transport projects can expand trade, increase foreign investment, and reduce poverty—by lowering trade costs. If fully implemented, BRI transport infrastructure can reduce travel times for economies along transport corridors by up to 12 percent, reducing trade costs in the process. In the rest of the world, travel times are estimated to fall by an average of 3 percent, showing that non-Belt and Road countries will also benefit from access to improved rails and ports in corridor economies.
BRI transport projects are estimated to increase trade by between 2.8 and 9.7 percent for corridor economies and between 1.7 and 6.2 percent for the world. Not all countries in the world would see positive trade effects, but aggregate effects are positive since all countries would experience a decline in trade costs due to the BRI’s network effect. Sectors that are time-sensitive (such as fresh fruits and vegetables) or require time-sensitive inputs (such as electronics, chemicals and others integrated in global value chains) will be affected the most, as countries specialise in new products. FDI inflows are expected to increase 7.6 percent for low-income corridor economies.
Increased trade is expected to increase global real income by 0.7 to 2.9 percent, not including the cost of infrastructure investment. The largest gains are expected for corridor economies, with real income gains between 1.2 and 3.4 percent. Increases in FDI would further boost these effects. BRI transport projects could contribute to lifting 7.6 million people from extreme poverty (less than PPP$1.90 a day) and 32 million people from moderate poverty (less than PPP$3.20 a day), mostly in corridor economies.
Reducing trade costs has the potential to reshape economic geography within and across countries, bringing gains from agglomeration. For instance, a spatial analysis of Central and South Asia finds that real incomes in Pakistan could benefit from urban clustering and increasing returns in manufacturing. Cities in western China such as Urumqi are also likely to experience large gains in incomes, as are Kyrgyz Republic cities including Osh and Bishkek, which account for more than 40 percent of national income.
Income gains would be unevenly distributed across countries. Real income gains in countries like Kyrgyz Republic, Pakistan, and Thailand could be above 8 percent. Real incomes for corridor economies could be an estimated two to four times larger.
Increased private sector participation can help sustain the BRI in the long term. The initiative thus far has been driven predominantly by China’s state-owned banks and state-owned enterprises. To increase private sector participation in the BRI, participating countries will need to improve the investment climate and reduce the risks facing potential investors. Comprehensive fiscal frameworks and improved regulatory environments can help ensure that projects are financed sustainably. Bolder and deeper policy reforms will be required for the current realities to catch up with the ambitions of the Belt and Road Initiative. Reforms and actions should be based on three core principles for corridor economies, including China:
The first is transparency. Providing more public information on project planning, fiscal costs and budgeting, and procurement will improve the effectiveness of individual infrastructure investments and national development strategies. Greater transparency is essential to encourage community involvement and build public trust in investment decisions.
The second is country-specific reform. Many countries have trade policies and border management practices that inhibit cross-border trade. Making it easier to import and export goods is essential for countries to reap the full benefits of BRI investments. All corridor economies would benefit from open procurement processes, stronger governance, and fiscal and debt sustainability frameworks that allow them to fully account for the potential costs of debt-financed infrastructure. Given the risks associated with BRI corridors, countries can also invest in complementary adjustment policies, social and environmental safety nets, investments in other skills and infrastructure, and mobile labor. • The third is multilateral cooperation, including coordination across BRI projects. For countries to fully benefit from the positive spillovers of economic corridor development, they will need to work together—including through existing regional and multilateral organizations—to improve trade facilitation and border management, unify standards in building infrastructure, agree on legal standards and investor protections that will encourage further investment along BRI corridors, and manage environmental risks.
The data referred to above has been gleaned from a World Bank study conducted to enable policymakers in more than 70 countries along the BRI corridors to make evidence-based assessments of how to maximize the benefits and manage the risks of participating in BRI. It provides evidence on how Belt and Road corridor economies could benefit from greater transport connectivity. • It assesses the priorities and sequencing for policy reforms that could maximize the benefits of infrastructure investments • It identifies the main risks and ways to manage them.
Four main findings emerge from the study: 1. Infrastructure and policy gaps in Belt and Road corridor economies that exist currently hinder trade and foreign investment. New infrastructure can help close these gaps, but it is costly—and investments are occurring in the context of rising public debt. • Trade in BRI corridor economies currently is estimated to be 30 percent below potential, and FDI is an estimated 70 percent below potential. Currently the economies accounted for close to 40 percent of global merchandise exports and 35 percent of foreign direct investment (FDI) inflows in 2017. Yet many corridor economies, particularly low-income countries, tend to be poorly integrated in regional and world markets—with low trade, small FDI inflows, and marginal participation in global value chains. • Trade and investment policies are often restrictive, and trade agreements between corridor economies currently tend to be shallow and fragmented. Gaps in infrastructure compound gaps in policy, and cross-regional integration is mostly missing currently. Border delays can be over 40 times higher in low-performing countries than in the best performing countries.
— The writer is veteran journalist and a former editor based in Islamabad.

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