The 2020s could be a golden era for emerging market infrastructure investment, if leading economies can find ways to overcome geopolitical concerns to fund projects multilaterally, and private global capital can align with China's Belt & Road Initiative in an ongoing and sustainable way.
That is the most optimistic scenario of five laid out in a new, detailed BRI & Beyond Forecast, produced by BRI consultancy Silk Road Associates, in partnership with global law firm Baker McKenzie.
However, the difference between the forecasts is stark. While the 'Global Cooperation Model'* estimates BRI-related investments of US$1.32 trillion over the 2020s, at the other end of the scale, a 'Uni-Polar Model', which sees the impacts of a significant recession coupled with increasing nationalism and more aggressive competition from other nations, values potential BRI-related investments in the 2020s at only US$560 billion.
While this lower-end forecast is still an enormous sum by historical standards, it will do much less to plug a global infrastructure investment gap that is set to grow to an estimated US$18 trillion by 2040, according to the World Economic Forum.
The other two models included in the forecast see a mixture of these factors, but with other key elements taking centre stage. The 'Global Sustainability Model' puts greater weighting on global and local pressure to act on climate change and other environmental concerns, seeing BRI as a central part of the solution. Meanwhile, the 'Supply Chain Relocation Model' sees a protracted trade war more rapidly push infrastructure development into other low cost jurisdictions, which may in fact have the impact of hastening China's BRI efforts, while also slowing production at home.
The fifth scenario is the aggregated 'Baseline Model', in which Baker McKenzie and Silk Road Associates forecast an estimated US$910 billion in BRI investments in the 2020s, with a geographical split between Sub-Saharan Africa (25%), Southeast Asia (18%), Latin America (15%) and South Asia (13%), and the remainder spread throughout Central Asia, Eastern and Central Europe, the Middle East and 'non core' BRI countries.
This forecasting is released at a time when BRI continues to evolve significantly, with more investments beginning to move across to multilateral development banks, and through partnerships with countries such as Japan. However, the geopolitical backdrop remains challenging, with the ongoing trade war creating an atmosphere of caution and projects taking longer to get signed off and underway.
Speaking on the eve of a major BRI Summit in Hong Kong, Ai Ai Wong, Chair, Asia Pacific, Baker McKenzie, said
"BRI has the potential to make major inroads in closing the emerging market infrastructure funding gap in the decade to come, but this will be dependent on a genuine willingness for governments, financial institutions and sponsors, developers and other private sector participants to work multilaterally, and ensure there is sufficient involvement of local stakeholders in the process.
"A path to ongoing BRI success is increasingly likely to be what is increasingly known as 'greening the Belt and Road', i.e. developing renewable energy generation, lower emission transport systems and smart city infrastructure that allow for a more sustainable future."
According to Silk Road Associates, BRI projects are still happening, but the trend is towards smaller projects that are not seen as overly politically or environmentally contentious.
Ben Simpfendorfer, Founder & CEO, Silk Road Associates, said:
"China’s BRI has evolved significantly since its early inception; today’s projects look very different to those signed five years ago and they will look different again five years from now. After an early focus on core infrastructure, I expect the private sector, global capital, and manufacturing will play a growing role in the future of BRI, in turn helping to shape China's role in global supply chains."
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Our BRI modelling projects potential BRI investments across 150+ countries though until 2030. The modelling is sensitive to a country’s infrastructure and financing needs, its receptiveness to BRI projects, and it’s role in the global supply chain. Silk Road Associates adopted a broad measure of BRI, forecasting projects in core infrastructure, including power, rail, road, ports, and water, as well as related activity, including export manufacturing. Figures are expressed in current US$ terms.