Confidence, expectations grow for the Belt and Road Initiative
FORMER head of the African Development Bank Donald Kaberuka has a remarkably polarized world view.
According to the Rawandan economist, we are confronted by two equal and opposite standpoints: “The world is opening up” vs “It’s closing down.”
One hand, the pessimistic or “closing down” hand if you will, has one finger pointing at the US-China trade conflict and spikes in protectionism and populism; while the other hand, the bright-side hand, Kaberuka’s hand, opens to show new developments like the Belt and Road Initiative and the current celebration of the joys and profit born from forty years of opening up in China. With China at the center of both perspectives, Kaberuka was recently at Fudan University, where he gave an African angle on the BRI.
“I understand the BRI is meant to enhance common development,” said Kaberuka, who was head of the ADB for 10 years, “and it will reinforce rules-based, multilateral trade arrangements.”
The anger that seems to be brooding, or even boiling over, on the part of those bruised by globalization originates, Kaberuka said, in an uneven distribution of the gains.
Africa, which used to be home to some of the slowest-growing economies, finds itself in the high-powered growth limelight today. In rough numbers, the African economy is five times bigger now that it was in 2000. Many attribute this brisk growth to rising oil, gas and mineral prices, but Kaberuka believes “commodities play a part, but only a small part.”
Infrastructure boom
Instead, more complex forces are at play: investment, growing domestic markets, increased access to technology and services. He also credits Chinese companies for the infrastructure boom that has seen railways, ports, airports and highways sprout up across the continent.
Africa now depends much less on external support or foreign aid. As confidence grows, expectations are increasingly for equal partnerships, rooted in mutual interest.
The BRI appears to be setting a new standard for international cooperation.
One of the biggest problems with the BRI is financing. This was expected since the initiative is “of historical proportions,” Kaberuka said, and “there is no silver bullet (for funding).”
“The need for funding requires countries to work together to tap into private markets, to bring in blended financing,” he noted.
As an insider with access to firsthand information on BRI projects, Guo Lian is in a good position to judge the role of domestic financial institutions in supporting the initiative.
Committee member of China Development Bank, a policy bank, Guo knows that domestic policy banks — like the one he works for — and commercial banks have extended a combined credit line of hundreds of billions of dollars to fund major BRI projects.
Diversification of risks
Huge as the sum may appear, it is still inadequate. Officials like Guo reckon that a boost in financing will have to come from Chinese banks setting up branches and subsidiaries overseas.
“This will be instrumental in bringing down borrowing costs of BRI projects,” said Guo. “Chinese companies face a high threshold when borrowing in developing countries.”
Ideally, currency swaps and settlement of trade in yuan will diversify risks, most notably, exchange rate risks. Studies indicate that miscalculations of and bungled reactions to exchange rate changes are chiefly to blame for losses incurred by companies engaged in the BRI.
Reflecting on the achievements of the BRI in its first five years, Jin Xin, director of China Center for Contemporary World Studies, denied that China was merely doling out largesse.
“It’s a drive for common prosperity,” said Jin. “We welcome all countries, including developed nations, to join in, rather than watching or slinging mud from the sidelines.”
The initial emphasis on connectivity between China and other particiapants will gradually shift into a focus on links between countries or groups from the same region.
The BRI must seek higher goals and standards, principally to improve the value chain, so that countries in disadvantageous positions in the global division of labor can make the best of their participation. The correct way to look at the BRI is to put it in a historical perspective, Jin noted.
We should study how the initiative relates to individual countries’ own national development plans, the rebalancing of world economy and the UN 2030 Agenda for Sustainable Development, he said.