Russia’s index value increased again in Q4, Belarus and Ukraine moved up from tier five to tier four, and tier-three Croatia, Montenegro, Macedonia, Poland and Slovenia made ground.
Meanwhile, Bosnia-Herzegovina, Bulgaria, Latvia and Tajikistan jumped from tier three to tier two, and Hungary and Romania – in tier two – also improved.
These are the latest results from Euromoney’s Belt and Road Index (EBRI), grading investor climates for 68 countries across five categories, or tiers, showing changes in their economic growth rates and/or politico-economic and structural risk situation since China’s Belt and Road Initiative (BRI) – also known as One Belt One Road – was inaugurated in 2013.
The survey now has six countries in tier one, revealing the biggest improvement of all, Bhutan, which joins Ethiopia, the Maldives, Laos, Bangladesh and Nepal.
Along with gains in Africa and the Middle East, countries across CEE and the former Soviet bloc in central Asia displayed notable improvements, despite falls for Albania, Slovakia and Turkey.
This highlights huge potential, but what is less clear is whether the project is living up to expectations.
M Nicolas Firzli is chair of the Singapore Economic Forum and advisory board member of the World Bank Global Infrastructure Facility, and follows the BRI closely.
He sees it as the rise of a more pragmatic policy perspective rooted in geo-economics, welding together economic policy with national grandeur – the “Chinese dream” – a model similarly pursued by Russia and the US.
“China is a juggernaut that has moved into CEE with billions of dollars of direct investments and soft loans, focusing on infrastructure and real estate, in energy, transport and warehousing platforms as well as private equity and venture capital [telecoms, biotech, renewable energy].”
Chinese investors have found receptive ears from the Balkans to the Baltics, he says, “in a strategic region treated harshly by Germany and the EU in the wake of the global financial crisis”.
To know which countries will benefit from this age of geo-economics, Firzli urges investors to look for strategically located mid-sized economies with interesting ports, airports and gas supplies, diversified structures and well-trained labour forces.
In Latvia, rising from tier three to tier two, Chinese firms will invest heavily in various sectors. Belarus, jumping from tier five to tier four, offers potential in agribusiness, land transport and energy distribution. Croatia, Romania and Slovenia are also ideally positioned to benefit from the mounting wave of foreign direct investment from China.
“These countries will keep on attracting Chinese capital in the coming quarters and some of that Chinese money may actually come indirectly, for example from FinEst Bay Area Development, a Chinese-backed Finnish conglomerate, which plans to build the Tallinn-Helsinki undersea tunnel for a whopping €15 billion,” says Firzli.
However, herein lies one of the main problems that Firzli is acutely aware of as the project draws mounting criticism from Brussels and Washington: that China may be laying infrastructure debt traps to capture strategic assets – or so the perception goes.
Another is the competition for finance, with China becoming stretched as its economy slows.
The 17+1 Summit in April between China and leaders of the CEE region should enliven interest, but Czech Republic, for one, has other ideas after falling out with China over spying and influence allegations, plus what it insists is a wide berth between the levels of investment received and the promises that were made.
Tajikistan’s experience highlights other issues. Its index value improved the most in Q4, signalling strong real-terms economic growth of 6% to 7% or more every year since the BRI was launched, coupled with an upgraded investor risk climate encapsulating stronger economic factors and policymaking.
No surprise then that Tajikistan is among the top-10 most improved countries for Doing Business, according to the World Bank, a positive trend that goes hand in hand with its BRI focus, resulting in China surpassing Russia as its biggest investor.
More than $1.5 billion of Chinese investments have winged their way there, mostly in the form of loans with strings attached. These now account for more than half the national debt, with Chinese companies granted favourable terms.
However, while Tajikistan requires the financing to build roads, railways and other critical infrastructure, it comes with notable downsides as projects tend to be overpriced – and some that do not really need to be built at all.
This is even before mention is made of China shunning local workers, corruption, and the granting of land and mining rights in return.