Sometimes ignored by most media and investors as well, the Belt and Road Initiative (BRI) – also known as the new Silk Road – prospects instead to open a lot of opportunities for citizens and companies from the countries involved in the project. A recent World Bank Group study analyses both positive and negative impacts coming from BRI.
It could sound like a romantic, nostalgic and also maybe suggestive and really visionary idea. Instead, it represents a concrete huge opportunity for people and corporates in the involved countries.
Initially called “One Belt, One Road” (OBOR), the renamed “Belt and Road Initiative” (BRI) is an ambitious and strategic project, designed by the Chinese authorities in 2013 for improving connectivity and cooperation on a large scale. Ideally, the BRI intends to revive the old Silk Road – the same one of the Marco Polo’s travels and the first trade exchanges among west and east markets. Right as the first legendary route, also the new modern Silk Road aims to connect the world, from one end to another, thanks to a wide and advanced network of highroads, railways, ports, pipeline, shipping and communication routes. Target is enlarging the global freight market as well as enhancing the trade relationships among about 70 countries now involved in the initiative, representing around half of the world population for an estimated value of more than 1,000 billion dollars.
Despite these numbers, both media and potential investors seem to pay low attention to the “Belt and Road Initiative”, perhaps underestimating the opportunities. The first, as mentioned, concerns the potential expansion of the global consumption market. The most recent experience in the vast Chinese market alone would be enough to demonstrate what the achievable growth margins could be. Within a few years, the positive trend of the Chinese economy has led to a general rise in incomes, an increase in population, the creation first and then the enlargement of that middle class which is now intended as one of the main engines of national and global consumptions. So, also as a consequence of the “digital boom”, there was a “cascade effect” on the worldwide market. The growth in consumption is a wide and global phenomenon that now the BRI can contribute to get stronger. The general strengthening of infrastructures coming from the initiative is a further meaningful advantage. Some countries involved in the BRI and now almost entirely lacking in infrastructural development will be connected to the rest of the world.
Looking at the BRI, both positive and negative impacts have to be considered anyway. Quantifying all of them for such a large project is a big challenge that the World Bank Group has taken up, realizing an independent analysis of risks and opportunities of Belt and Road transport corridors. Supported by empirical research and rigorous economic modelling, the “Belt and Road Economics” study aims to help the engaging countries select the best investments for their development needs as well as to enrich the public debates surrounding BRI, by grounding the discussion in data and analysis. The WBG research pointes four main topics highlighting positive impacts and potential risks.
The first is about the opportunities given by the BRI transport corridors in lowering travel times and increasing trade and investment. Actually, infrastructure and policy gaps in Belt and Road corridor economies hinder trade and foreign direct investment (FDI) that are estimated to be respectively 30 and 70 percent below potential. New infrastructure can help fill these gaps. However, it is costly and moreover, investments are occurring in the context of rising public debt.
Second, BRI can definitely help expand trade, increase foreign investments as well as reduce poverty by lowering trade costs. If fully implemented - that is said in the WBG study - the BRI transport projects could increase trade between 1.7 and 6.2 percent for the world, rising global real income by 0.7 to 2.9 percent. However, for some countries, the costs of new infrastructure could even outweigh the gains.
Third, complementary policy reforms can strongly concur to maximize the positive effects of BRI transport projects and ensure the wide sharing of the gains. Real incomes for participating economies could be two to four times bigger if the reforms to reduce border delays and trade restrictions are implemented. The WBG report also stresses that for some country’s reforms are a precondition.
Fourth and last, the BRI also presents the same risks common to the large infrastructure projects - debt sustainability risks, governance risks, environmental risks, social risks. However, as reported in the World Bank Group document, they could become sharpener because of the limited transparency and openness of the initiative and the weakness of economic fundamentals and governance of some participating countries.
The main message in the “Belt and Road Economics” report is that Belt and Road transport corridors have the potential to substantially improve trade, foreign investment and living conditions for citizens in its participating countries. However, for really taking the chance, China and the other involved economies have to adopt deeper policy reforms that increase transparency, expand trade, improve debt sustainability, and mitigate environmental, social, and corruption risks.