Much of the former Soviet bloc is lagging in the Euromoney Belt & Road Index, demonstrating slow progress – but also substantial opportunities.
Despite the fact 39 of the 68 countries in the Euromoney Belt & Road Index (EBRI) improved in Q3 2021 relative to Q2, many countries in eastern Europe and central Asia are lagging in tier 4, with index values less than 100.
An index value below 100 describes a deteriorating
investor environment, according to its constituent factors. They are GDP and the
various economic and political risk indicators included in Euromoney’s country
risk survey providing guidance to the business environment.
Azerbaijan, Belarus, Kazakhstan,
Russia and Ukraine all moved up from tier 5 before the pandemic struck, but remain
mired in tier 4, behind countries with stronger growth rates and business
climates. Many of these are EU members, or are aspiring to join, and are in
receipt of substantial financing as a result.
According to Nicolas Firzli, director
of the G20 Pensions Forum and advisory board member of the World Bank Global
Infrastructure Facility, the southeastern European countries, such as Albania,
Bulgaria, Montenegro, North Macedonia and Slovenia have improved in the EBRI,
reflecting their positive macroeconomic outlooks and “newfound investment
attractiveness of these once peripheral countries”.
“The accelerating Sino-American
rivalry along the New Silk Road, triggered by Beijing’s Belt and Road
Initiative (BRI) and the belated financial response by the Biden White House
and G7 policymakers – at Carbis Bay in June – known as Build Back Better World
(B3W), have changed the geo-economic equation for good,” he says.
“Skopje, Sofia, Belgrade and Podgorica
are now at the very centre of the Eurasian continuum, attracting billions in
foreign direct investment (FDI) every quarter from both western investors (US,
UK, EU) and Chinese state-owned enterprises (SOEs), thus ensuring solid growth
prospects for that strategically located region.”
The question is whether other
countries will catch up and how China views them strategically from the Belt and
Road perspective.
Lagging behind
Take Ukraine, with which China has
engaged more systemically this year in the light of worsening relations with
the west and central and eastern Europe, highlighted by Lithuania pulling out
of the crumbling 17+1 bloc, an initiative devised by China to foster business
and investment relations.
Ukraine is seen as important for
diversifying the northern corridor of the new Silk Road, with Kiev eyeing up
the opportunities of bridging the east-west divide by way of lucrative export
opportunities and improvements to its transport infrastructure.
Yet, according to Iikka Korhonen, head
of research at the Bank of Finland Institute for Transition Economics, “Ukraine
has been reluctant to sell agricultural land, and the privatization of
state-owned companies, which could be attractive targets for the Chinese
companies, has been very slow”.
Furthermore, he states that much of the
transport and energy infrastructure, for example, is owned by local oligarchs.
“Their power – both financial and
political – stems from owning these assets,” says Korhonen. “So, they are very
unlikely to sell.”
He also makes the point that when the
Chinese are looking to invest in “something sensitive”, roadblocks are often
put in the way, noting that at the insistence of the US, China was prevented
from taking over the Ukrainian military aircraft engine manufacturer Motor
Sich.
Spanning the
region
Whereas Tajikistan, Turkmenistan,
Moldova and Uzbekistan are all riding high in the EBRI’s tier 2, with index
values close to 200, Ukraine and other countries in the region are far lower – and
in that respect they still offer considerable opportunity for development
driving fast-paced growth.
Constantin Gurdgiev, a professor at
the Middlebury Institute of International Studies, argues that the weaker gains
for countries such as Russia, Kazakhstan and Azerbaijan are supported by a “myopic
view of these economies as lacking growth momentum before the onset of the
pandemic and, correspondingly, witnessing a slower recovery since the stabilization
of the pandemic in mid-2021”.
All three, he says, face substantial
tailwinds from rising energy prices and the acceleration in demand for primary
materials in Europe and Asia.
“The ongoing supply-chain chaos
engulfing much of the world puts forward stronger incentives for China, as well
as Russia, to develop alternative shipping-route infrastructures to counter the
migration of production hubs away from Asia, and to mitigate the risk that
existent shipping lines can be weaponized by the US,” adds Gurdgiev.
From China’s point of view, he says,
the current supply-chain crisis in international trade requires a strategic
response aimed at mitigating similar disruptions in the future.
“One pillar of such a response would
be to complete the central Asia-Russia-Europe leg of the Belt and Road
Initiative,” says Gurdgiev. “Another pillar is to identify suitable
counterparties that can serve as assembly, manufacturing and logistics hubs for
supplying European markets – in a way, entrepôts into the EU.”
From both points of view, Ukraine and
Belarus, he argues, offer China excellent opportunities for inward investment
aimed at developing transport and logistics systems linked with the BRI.
Of the two, Belarus, with an index
value of just 85.26 in the EBRI, is more promising in terms of its demographics
and its links to Russia and central Asia.
However, the recent political unrest
in Minsk has de facto cancelled any serious chances of large scale Chinese FDI
flowing into the country.
This explains why, he says, that after
years of watching the sustained depreciation of Ukrainian assets, Beijing is
starting to show interest in moving into Ukraine.
The question is how far Kiev will go in cooperating with Beijing. The BRI could prove the game changer.