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Myanmar: Big Four firm hails Belt and Road as a “global game changer”
Foreign businesses are encouraged to join the game early to reap the long-term benefits
A recent report from a multinational professional services firm praises China’s Belt and Road Initiative (BRI) as transcending beyond initial expectations by extensively boosting trade and commerce and supporting both physical and social infrastructures. It urged foreign businesses to join the game.
The report Repaving the ancient Silk Routes, published by PwC Growth Markets Centre in May, hails the Belt and Road Initiative as “a global game changer”. The report is produced to showcase the opportunities for foreign businesses to be involved in the BRI and the potential risks.
According to the report, the BRI transcended many of its initial impressions and has proven to be much more than offloading industrial surplus or building a road. For example, there is an emphasis on developing bankable infrastructure projects supported by large international agencies, which infers that the BRI goes beyond geopolitics and focuses on trade and investment promotion.
Infrastructure ecosystem
The BRI has included the building of highways, railways, ports, airports and now even attempts to establish a maritime route that cuts through from China to Southeast Asia and beyond.
Furthermore, the scheme encompasses the development of an infrastructure ecosystem ranging from power generation and utilities infrastructure, oil and gas pipelines, to telecommunications transmission cables. There will be further activities involving social infrastructure such as education and healthcare, media, software and innovation. The BRI also supports on industrial and resource cooperation to drive trade – 70 cooperative zones have already been set up.
This echoes with what Jonathan Woetzel, McKinsey senior partner and McKinsey Global Institute director, as well as Bernard Chan, president of Asia Financial Holdings and grandson of Chin Sophonpanich, said regarding how the initiative will play out in Myanmar and the region.
Jonathan Woetzel told The Myanmar Times that the private sector and foreign businesses, not multilateral institutions such as the Asian Infrastructure Investment Bank, have the biggest part to play.
Similarly, Bernard Chan said services, trade, tourism and other commercial opportunities will follow through after the infrastructure hardware is built. While the physical hardware is led by Chinese state-owned enterprises, the opportunities which come after the infrastructure phase will involve foreign businesses and the private sector.
The report cited a few major achievements in the BRI, including the first China-UK transnational freight train, which completed its 12,450km journey, earlier in January, and the Jakarta-Bandung high-speed rail project, for which the construction contract was signed in April.
Sino-foreign partnerships
Repaving the ancient Silk Routes argued that partnerships between Chinese organisations and foreign businesses can prove to be beneficial for both sides in many ways. Gaining knowledge through foreign partnerships can help Chinese firms develop expertise, and enhance their credibility in the infrastructure sector. For foreign businesses, collaboration with Chinese companies in infrastructure projects in third party countries can help open up access to its large domestic market.
Foreign businesses can partake as a private investor in projects which are risk-guaranteed by Chinese institutions, according to the report.
“Successful partnership examples already exist, wherein foreign multinationals have become established equipment suppliers to Chinese engineering, procurement and construction [EPC] companies,” it said.
In a typical BRI project, foreign firms are able to contribute by making connections with local stakeholders, as well as having established knowledge of managing an infrastructure project in developing markets. This helps reduce operational risks in a less familiar terrain and business environment.
The authors identified three main areas of risks in the BRI: geopolitical, funding and operational. Geopolitical risks refer to changes in political regimes or in bilateral relations between countries involved in BRI during a project’s life-span. Funding risks mean funding gaps as well as host countries’ varied ability to repay loans, exacerbated by higher capital and debt service ratios of BRI projects. Operational risks are due to a lack of experience in delivering and managing complex transnational projects, leading to delays and cost overruns.
Frank Lyn, markets leader at PwC in China and Hong kong, urged companies to participate at an early stage to reap rewards in the long run.
“In many ways, the initiative serves as a blueprint for how China wants to further connect itself into the global economy and strengthen its influence in the region.
“The initiative .. is a driver for long-term growth and expansion as well as corporate profitability. Therefore, strategically, companies need to be involved at an early stage to reap the long term benefits,” he said.
Joshua Yau, lead principal in Belt and Road at PwC Strategy in China, said that China’s financial prowess would change the game in the process of constructing infrastructure abroad.
“Chinese companies will increasingly bring not only their EPC capabilities, but also their financial prowess to BRI countries,” he explained.
The report concluded that the BRI boasts an unprecedented scale and will drive massive infrastructure spending internationally and create opportunities which warrant foreign businesses to take part. There have already been many success cases of Sino-foreign partnerships which led to increasing demand for foreign capabilities to BRI projects. This, in turn, reaffirms that there are commercial opportunities across the infrastructure value chain.
But the publication cautioned companies against venturing into infrastructure projects without fully understanding the potential risks.
Establishing contingency plans to manage short-term disruptions, planning for lengthy project life-spans and establishing strong relationships with local authorities all help navigate the domestic political and local bureaucratic complications, Repaving the ancient Silk Routes suggested.
Source: http://www.mmtimes.com/index.php/business/27049-big-four-firm-hails-belt-and-road-as-a-global-game-changer.html