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At its five-year point, China’s Belt and Road has made major strides at interconnecting Asia, Europe and Africa, opening up previously off-the-radar markets to global trade and infrastructure investment. However, such great rewards are not without their risks.
Over the past five years China’s Belt and Road Initiative, a megaproject to develop a series of overland and maritime trade corridors between Asia, Europe and Africa, has steadily been laying a new framework of transportation infrastructure, energy projects and trade zones, thereby providing the impetus for economic rejuvenation and political cooperation, but also debt and security risks.
Over 100 countries have signed memorandums of understanding (MoUs) with China committing to the Belt and Road Initiative and developments along its network of overland and maritime trade corridors have likewise been booming. According to China’s Ministry of Commerce, in the first three quarters of 2018, China’s trade with Belt and Road countries amounted to more than $860 billion – a 13.2 percent year-on-year increase – on the back of 82 Chinese-developed overseas trade zones, which have contributed to the creation of over 240,000 jobs. The western regions of China are likewise booming with development as Silk Road cities like Kashgar, Horgos, and Urumqi revive their ancient relevance. So too are European dry and sea ports like Małaszewicze, Duisburg, Hamburg and Piraeus, while new Middle Eastern manufacturing hubs, such as Duqm in Oman, are on the rise, fueled by Chinese investment.
“One positive development is that the Belt and Road has drawn attention to the global demand for infrastructure,” says Jonathan Hillman from the Center for Strategic and International Studies, a Washington-based think tank. “More countries are now realising that infrastructure, often viewed narrowly as a technical and domestic issue, carries wider-ranging economic and strategic implications.”
However, the rewards of the Belt and Road haven’t been without risks, as the initiative has welcomed in many previously war-torn, economically tumultuous and politically transitioning countries that are attempting to evolve from conflict-infused backwaters to new epicentres of global trade. The following takes a look at Pakistan, Djibouti and Georgia – three countries that have planted the seeds of economic potential beneath an opaque miasma of economic and political challenges.
Even before the Belt and Road was formally announced in 2013, China was already making big infrastructure investments in Djibouti, a country strategically located in East Africa at the entrance to the Red Sea – one of the world’s busiest shipping lanes that also serves as the primary gateway to Ethiopia and the interior of northeastern Africa.
Along with its strategic location, Djibouti has also become attractive as a Belt and Road hub due to its relative stability in a region that has not recently been known for such. “There is a big mess around the country,” Thierry Marill, Chairman of DHL partner Marill Group, says of Djibouti. “If you look around, you have the pirates at sea, you have the Al-Shabaab [militant group] in Somalia, you have the Yemeni war, you have the Eritrean conflict. So Djibouti is surrounded by many war zones, but Djibouti is quite a stable place.”
The Port of Djibouti provides a substantial portion of Djibouti’s overall GNP, bringing in nearly $2 billion in port fees from Ethiopia alone. With 100 million people, Ethiopia is the most populous landlocked country in the world, and while air cargo is on the rise there, the Port of Djibouti is still the country’s economic lifeline, handling upward of 95 percent of its foreign trade.
“The companies are looking for roads and connections, so once a port is connected to the hinterland then some major companies might be interested in investing in Djibouti. Without roads and without means of communication it’s useless,” Marill explains.
To this end, China has been making substantial investments in Djibouti’s transportation sector via the Belt and Road. The $590 million, 690-hectare Doraleh Multi-Purpose Port – a section of the Port of Djibouti – went into operation last year and is envisioned to become the quintessential Belt and Road transportation hub, connecting East Africa with Asia and Europe. The project has the capacity to handle two million metric tons of bulk cargo and 220,000 TEU a year. In addition to this, a China-funded manufacturing/export zone near the port that aims to employ 10,000 people is also in development. A new $599 million airport, built with the help of Chinese money and construction companies and expected to have the capacity to handle 100,000 metric tons of cargo and 1.5 million passengers per year, is currently in the works as well.
However, the biggest Chinese investment in Djibouti’s transportation sector is the $4.5 billion Addis Ababa-Djibouti Railway, which went into operation in early 2018. This railway currently has the capacity for five to ten 100-TEU trains daily; they go from Ethiopia’s capital city to Djibouti Port, traversing the 750 kilometres in 12 hours – a six-fold improvement in lead times.
However, Marill points out that China has acted less as a “no-strings-attached” investor in Djibouti and more as a lender, providing much-needed funding for infrastructure development that is to be repaid with interest at a future date. In the past two years alone, Djibouti has received $1.4 billion – 75 percent of its GDP – in loans from China, and some analysts have warned that the country may soon find itself in a “debt trap”.
Unlike many other Belt and Road countries that boast a scattered array of Chinese-invested development projects, China and Pakistan upped the ante and began building an entirely new nationwide infrastructure megaproject known as the China-Pakistan Economic Corridor (CPEC). It is projected to become a $62 billion network of interconnected transportation and energy projects, spanning 2,700 kilometres down the spine of Pakistan – from Kashgar in western China to Gwadar Port on the Arabian Sea.
“With an invaluable talent pool, vast land mass and progressive and forward-looking population, Pakistan is well placed to bring about an economic revolution,” says Umair Alam, Country Manager, DHL Global Forwarding Pakistan. “[Pakistan’s] business will benefit immensely from our association with China, the world’s largest exporter of goods and an economy that maintains strong growth potential.”
Gwadar Port is the biggest CPEC project to date, linking together an overland corridor and the maritime route of the Belt and Road. With over $1 billion worth of projects online today, the port is expected to spark a broader conurbation of development – a “megaport city” – with an array of residential, commercial and industrial projects led by the China Overseas Port Holding Company’s 2,282-acre free trade area.
The CPEC is also attempting to alleviate two of Pakistan’s major economic and social bottlenecks: inadequate transport infrastructure and deficient energy capacity. Traffic congestion is estimated to shave 3.55 percent off of Pakistan’s annual GDP, while a lack of energy capacity is responsible for a loss of around 2.5 percent. The CPEC will provide an entirely revitalised transportation grid spanning the country, including a 1,100-kilometre highway between Karachi and Lahore and the rebuilding of the Karakoram Highway, along with more than $33 billion worth of new energy projects. It is also laying a new network of oil and gas pipelines to transport fuel from Iran and Gwadar Port to China.
According to Muhammad Ali Hussain, Chief Marketing Officer for Gwadar Port, the emergence of the CPEC has led to other countries besides China showing interest in investing in Pakistan, including Germany, Australia and Saudi Arabia, which is planning to develop a $3 billion, 80,000-acre “oil city” in Gwadar.
However, the CPEC has not come without an array of challenges and risks. Inherently, it is a heavily debt-dependent endeavour: It contributed to Pakistan’s external debt rising to $95 billion in the second quarter of 2018 – a nearly $30 billion increase in three years – and some analysts have expressed the same “debt trap” fears that they apply to many other active Belt and Road countries. Development of the CPEC has also stoked domestic and international political tensions, as the northeastern part of the corridor breaches contested territory that India claims as its own. And in Balochistan, the location of Gwadar Port, separatist groups have been violently resisting Chinese-directed development projects, culminating in the bombing of the Chinese embassy in Karachi last November. But Pakistan hopes that the infrastructural leg up that the CPEC could potentially provide will increase the country’s economic outlook in the future, and there have been some early glimmers of hope: Pakistan’s economy is growing by 5.2 percent a year, with $14.7 billion in foreign reserves and a stock market that recently began hitting all-time highs.
Nestled in the heart of the Southern Caucasus, with Turkey to the west and Central Asia to the east, Georgia is a natural land bridge between the two sides of Eurasia: a gateway between the booming economies of Europe and China. This is a position that the country’s government is attempting to double down on as it engages in large-scale infrastructure development as well as favourable trade deals with a host of nations and economic blocs around the world.
“There is no country in the region that is more open to Chinese business and investment, Chinese people and culture or Chinese innovation and ideas than Georgia,” Georgia’s former prime minister Irakli Garibashvili said in a 2015 speech at Beijing University. This sentiment succinctly sums up Georgia’s position on China and the country’s aspirations to reimagine itself as a hub along the Belt and Road.
China was one of the first countries in the world to recognise Georgia’s independence, establishing relations in 1992. This nod was apparently not forgotten, as Georgia has become one of the biggest proponents of the Belt and Road Initiative, even going so far as to host their own Belt and Road conferences in 2015 and 2017 – the first to happen outside of China.
Trade between the two countries has risen from being nominal at the beginning of the 21st century to relatively significant. China is now one of Georgia’s largest trading partners, with imports/exports between the two countries worth $751 million in 2016. FDI from China is also significant, totalling $200 million in 2014, making China Georgia’s biggest foreign investor.
Beyond its favourable geographic position, Georgia has become an attractive option for foreign manufacturers due to the country’s array of international trade agreements. Georgia has a Deep and Comprehensive Free Trade Agreement with the EU, which allows Georgia-made goods to be exported to the bloc duty free. It also has preferential trade agreements with the U.S., Norway, Switzerland, Canada and Japan, along with free trade agreements with Turkey, Russia, Azerbaijan, Armenia, Ukraine and most of the Central Asian states. In May of 2017 China and Georgia signed a much-anticipated free trade agreement that will wipe out over 90 percent of trade tariffs between the countries.
Georgia has set up the bureaucratic framework to become an industrial epicentre at the heart of the Belt and Road, and it now needs to build up its infrastructure to a level to make good on this progress. One of the main projects working toward this goal is the Baku-Tbilisi-Kars (BTK) Railway, which links the new Azerbaijani port at Alat with Eastern Turkey via Georgia and went into service at the end of 2017. The 849-kilometre long rail line was the proverbial missing link in the Middle Corridor of the Belt and Road, which extends from China to Europe via the Caspian Sea – while bypassing Russia and their sanctions against the import or transport of many European goods. The BTK Railway has capacity for 1 million passengers and 6.5 million metric tonnes of cargo per year, and provides a much-needed diversity of options for shipping products overland between Europe and Asia in just 15 days. Other new infrastructure projects of note are the Anaklia Deep Sea Port on the Black Sea, which will be able to handle the sea’s largest vessels and 100 million metric tonnes of cargo per year, a new residential/commercial development called Tbilisi Sea New City that’s being built by the private Chinese firm Hualing, as well as a free industrial zone in Kutaisi. An MoU between China and Georgia was also signed at Georgia’s Belt and Road conference in 2017 to construct a new free economic zone.
Risks and rewards
The idea of “getting in first” has been central to China’s domestic development strategy – which has seen companies boldly moving into new frontiers throughout central and western China since the early 2000s – and the same ethic has been applied internationally with the Belt and Road. However, when opening up new markets to global development and trade, the promise of big rewards always comes hand in hand with inherent risks.
This article was first published in DHL’s Delivered magazine.