EBRI Q2 results: Putin joins the party as Russia steps up a gear


Jeremy Weltman
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A higher score, and tier, in the Euromoney Belt and Road Index shines the spotlight on Russia’s participation this quarter.

Xi-Jinping-Vladimir-Putin-shake-hands-R-780Shaky start: But now Russian president Vladimir Putin is more involved with Chinese president Xi Jinping’s BRI plans

Russia is lower in the rankings than other oil producers Bahrain, Malaysia, Saudi Arabia, Qatar and Kuwait, but its improvement is significant as it seeks a greater role in the China-led project after initially showing reticence to tag along.

In February, Russia confirmed its role building a section of the Meridian Highway, a toll road stretching through Russia from the Sagarchin crossing point with Kazakhstan to Belarus.

Now the question is how far Russian authorities are prepared to engage, and on what terms – although the potential is clear.

Responding to an improving index score, Russia is the only one of 69 countries moving up a category in the Euromoney Belt and Road Index (EBRI) this quarter, from tier five to tier four, narrowing the gap to Ukraine one place higher.

Investor climates are graded in the EBRI rankings across five categories.

Tier-one countries – Bangladesh, Ethiopia and Laos – have all shown the largest improvement in their growth rates and/or politico-economic and structural risk situation since China’s Belt and Road Initiative (BRI) – or One Belt, One Road – was inaugurated in 2013.

Russia’s rise through the rankings highlights more improvement than Azerbaijan, Kazakhstan or Turkey, all remaining in tier five.

This is down to two factors:

One is the better-than-expected recovery from the oil crisis. GDP increased on a real-terms basis by 2.3% in 2018, in contrast with a 2.5% contraction in 2015 when the rouble plunged.

The economy is expected to continue growing during the next few years, supported by commodities production, albeit at a reduced pace given the prevailing global economic climate, buoyed by oil prices above $60/barrel.

The stronger political and economic climate is another reason.

There have been small, but perceptible, improvements to factors such as government finances, and the regulatory and policymaking environment, among other investor risk indicators, including fiscal transparency guided by the IMF.

Growing partnership

The BRI offers Russia a foothold in central Asia, and for three main reasons – economic, social and geopolitical – argues Constantin Gurdgiev, a professor at the Middlebury Institute of International Studies.

Preserving and expanding Russian access to key markets for its energy, food and industrial exports is a primary motivation. The region is also an important source of migrant labour, and negatively a conduit for terrorism and illicit drugs trade.

Central Asia and the ‘far north’ are identified as longer-term development priorities, notably the Russian far east and south-eastern Siberia for food security, requiring substantial investment of private capital and modernization of agricultural production.

As with many other participating countries, the BRI can help to fulfil these requirements, which would otherwise be stymied by the lack of financing.

“China is a natural partner in this process due to both the availability of capital and its strategic interest in developing access to the Russian agri-food sector and its production base,” says Gurdgiev.

However, growing this partnership is not without its drawbacks.

Although China has shown it is amenable to addressing concerns about high costs, by renegotiating contracts with Myanmar and Malaysia, Russia and other countries will be concerned they may be saddled with debts.

Russia’s involvement is nevertheless synonymous with pivoting towards China as a bulwark against western sanctions, and given limited progress on energy trade.

President Vladimir Putin is seeking a larger role to spur the Russian-led Eurasian Economic Union, as Moscow contests for regional dominance across its traditional neighbourhood.

“Russian participation in China’s Belt and Road Initiative offers a better alignment to Russia’s longer-term economic and geopolitical objectives than others involving Sino-Russian cooperation,” argues Gurdgiev.

He says it gives Russia access to China’s capital markets, and a partnership for developing new capital markets and trade platforms to side-step western sanctions.

“An example of this is the joint work between China and Russia on developing a functional alternative to the Swift data management system for payments providers.

“Another is the growing trade settlement between China and Russia in renminbi, rouble and euro, rather than US dollars.”

Other notable changes

Other countries showing rapid improvement are the Philippines, Vietnam, Hungary and Bangladesh.

Last quarter, Euromoney remarked on the rise of Bangladesh, reaching tier-one status thanks to appreciating risk metrics and stunning economic growth averaging more than 7% per annum in real terms since 2013.

Government estimates indicate growth accelerated to 8.13% in fiscal year 2018/19 (to end-June) from 7.86% in 2017/18.

Other forecasters are more conservative, but Bangladesh is still among the five fastest-growing economies worldwide.

By contrast, Bhutan has seen its GDP growth slow sharply from just over 8% in 2016/17 to 4.6% in 2017/18. Consequently, its EBRI score has fallen the most, pushing the country lower into tier four.

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