The Belt and Road Infrastructure Development Index Report 2019
[Author]China International Contractors Association, China Export & Credit Insurance Corporation
[Summary] Altogether 71 countries, including 63 Belt & Road countries and 8 Portuguese-speaking countries, were chosen for the 2019 BRIDI research to envisage the future of the infrastructure industry over the next 2 or 3 years from the perspectives of the environment, demands, costs and passions for infrastructure facilities. This year, new features were added to the BRIDI model to make the prediction more sound and accurate.
1.Belt and Road Infrastructure Development Trend
(1) BRIDI remained high despite slower infrastructure development.
The BRIDI remains stable in 2019, despite a dip from 121 to 119 over the previous year. The heightened global political risks, economic slowdown, and disruption of the world economic and political structures amidst the tug-of-war between big powers, alongside the domestic and international complexity and volatility of the Belt and Road countries, have dragged down the sub-indices of development environment, demands, costs and passions by small margins. But BRIDI still stabilizes at a 5-year high.
(2) Infrastructure development was uneven across regions.
Southeast Asia maintains strong momentum and comes out first among seven regions for the third consecutive year. While South Asia and West Asia & North Africa have moved up one place from last year’s rankings, PSCs and Central & Eastern Europe have slipped one spot. Central & Eastern Europe (CEE), in particular, end up at the bottom of the rankings.
(3) Country-specific BRIDIs showed a huge gap.
Indonesia, Vietnam, United Arab Emirates, Pakistan and Russia rank top five for country-specific BRIDIs. Indonesia scores 138, topping the list for the third year in a row. Its sub-indices of development environment, demands and passions also rank high.
2.Belt and Road Infrastructure Development Characteristics
(1) The transportation & energy industries show robust demands.
The Development Demands Sub-index is generally higher in transportation and energy industries than in the other two. The transportation industry carries great weight to the BRI, and is the main driver powering regional connectivity and international infrastructure development. According to the BMI’s statistics about global infrastructure projects, in 2018, the transportation industry took the largest share of the total value of newly-signed contracts among the four industries along the Belt and Road. The sector of roads and bridges accounted for 47.5% of the transportation industry by the value of new contracts. Most Belt and Road counties are middle-income economies (including lower-middle-income countries and upper-middle-income countries) that have huge potentials and demands for transportation infrastructure development. In the coming years, the accelerated industrialization and urbanization will generate new demands for transportation infrastructure. An interconnected network of roads, railways, ports, airports and other transportation facilities along the Belt and Road will also provide a strong boost to the international infrastructure development.
（2）Diversified financing tools are used for infrastructure development.
At present, development and policy-oriented financial institutions, special investment funds, commercial banks, and emerging multilateral development financial institutions constitute the financing channels for the Belt and Road infrastructure projects, where multilateral financial institutions are the most supportive. Sovereign wealth funds (SWFs) and investment funds are also playing a bigger role. The massive influx of capital, however, still falls short of the required amount to accommodate the huge infrastructure demands. Therefore, as an innovative financing mechanism for the infrastructure sector, Private Participation in Infrastructure (PPI) investment finds favor with proprietors and contractors. There might be ups and downs in the amount of PPI investment, but as the financing environment and infrastructure industry improve, the private capital will play a greater role in infrastructure projects and help diversify the financing channels.
(3) BRI lends fresh impetus to global infrastructure development
The recent years have seen heighted enthusiasm for infrastructure projects among all parties. Many countries have launched policies and programs to align with and better serve the BRI. Their aim is to facilitate economic restructuringand industrial upgrading, increase public expenditure and government subsidies on infrastructure, encourage cross-border investment, explore new ways of cooperation, and strengthen supports for infrastructure interconnectivity.
3.2019 Outlook on Global Risks
(1) Infrastructure projects are most vulnerable to geopolitical changes and complexity.
Given the enormous investment amount, infrastructure projects are generally driven by government authorities or supported by international organizations to serve political ends. Therefore, they are most vulnerable to social turmoil, political power shifts and other risk events in the host countries. In 2019, many of the Belt and Road countries will hold presidential or parliamentary elections. The shifts of power will often compromise policy continuity and political stability, increase political risks, and affect infrastructure projects.
(2) The changing economic environment adds uncertainties to infrastructure prospects.
The global economic slowdown and sluggish performance of major economies since 2018 have presented risks and challenges to the infrastructure industry. On the one hand, capital begins to flow back into developed economies upon monetary policy changes, which has to some extent increased the financial burden on emerging markets and developing countries that are vigorously developing their infrastructure. On the other hand, the U.S. has provoked trade wars across the world since the start of Trump's presidency in 2017. Its protectionist policies and tariffs on steel, aluminum and other products have caused disturbances to the world economyand fluctuations in global commodity prices, and have added uncertainties to raw material costs in the infrastructure market.
(3) The changing economic environment adds uncertainties to infrastructure prospects.
Some of the Belt and Road countries have a harsh natural environment, where extreme weather and natural disasters frequently occur. According to the EM-DAT’s International Disaster Database, 4,581 natural disasters took place in Belt and Road countries between 1980 and 2015. Among them, Southeast Asia was the most hit with 1,348 occurrences, followed by South Asia (1,120), Central & Eastern Europe (583), Central Asia & West Asia (509), and Middle East & Africa (263). Natural disasters pose a threat to safety, of course; it may also cause project delays due to impeded traffic and raw material shortage.
(4) Inconsistency of infrastructure engineering specifications hampers progress or causes delays.
Currently, there are many prevailing engineering specifications in the world, including the U.S., UK, European and Russian ones, which differ greatly from each other. The Belt and Road countries, therefore, can make different choices, and there comes the problem of specification inconsistency in international engineering projects. This problem, if not solved through effective and immediate negotiations, will compromise the performance of the project in basic data collection, bidding, design, procurement, construction, labor management, measurement, payment, and acceptance upon completion, etc.
(5) Companies are facing even more intense competition when expanding the international market.
Contractors from the developed countries, like Europe and U.S., have superior technical expertise, capital strength, information and equipment. They take the lion’s share of the Middle East and European markets, making it hard for their developing rivals to squeeze in. Meanwhile, the developed countries have launched a string of supportive policies to send their players to the emerging markets. It is expected that, as the infrastructure demands increase along the Belt and Road, international contractors will face even more intense competitions.
4.Suggestions on Belt and Road Infrastructure Development
This report advises related companies on how to seize market opportunities and avoid risks, in a bid to promote sustainable infrastructure development along the Belt and Road.
(1) Seizing the BRI opportunities and sharpening the edge of good quality
Now, more than 100 countries and international organizations have come on board the BRI. The contractors shall leverage the Belt and Road cooperation platform and mechanism, make infrastructure connectivity a priority, and differentiate their strategies to align with the characteristics and resource endowments of different countries and regions.
(2) Insisting on win-win cooperation and demonstrating “soft power”
Countries differ in culture, especially in language, custom, religious beliefand business practices. Large engineering projects, in particular, are likely to be influenced by public opinions due to such cultural difference. All participants in the infrastructure industry shall adhere to the principle of “seeking shared benefits through extensive consultation and joint contribution”, intensify win-win cooperation with local governments and companies, pursue localized management, attach importance to a good public relation with the local community, and visualize the image of a responsible international brand. We must pay due respects to local culture and custom, fulfill corporate social responsibilities, and align corporate goals with the economic and social development of the host countries, and jointly build a community of shared future for mankind.
(3) Improving risk awareness and understanding the importance of policy-oriented and commercial insurance services
To adapt to the changing environment, the contractors must first establish a proper philosophy of risks, strike a balance between benefits and risks, and scientifically evaluate project risks and yields. Second, they shall raise risk awareness, implement the concept of risk control throughout the entire project process, establish a lifecycle risk warning system, work out risk plans as per project value, lifecycle and risks, and properly evaluate and control any risks before, during and after the project. Third, all participants shall understand the important role of policy-oriented and commercial insurance products, especially in transferring the risks involved in overseas investment and operation, and providing solid safeguards for Belt and Road cooperation.